1. What are the pros and cons of convertible bonds to a bond investor? Under what conditions would you favor buying convertibles over straight bonds? Why might you favor buying straight bonds over convertibles?
2. A firm’s bonds have a maturity of 12 years with a $1,000 face value, a 12 percent semiannual coupon, are callable in 6 years at $1,070, and currently sell at a price of $1,141. What is their yield to maturity (YTM)?
3. A firm’s bonds have a maturity of 14 years with a $1,000 face value, a 13 percent semiannual coupon, are callable in 5 years at $1,055, and currently sell at a price of $1,152. What is their yield to call (YTC)?