can you check my answers if they are correct thank you

1.) A convertible bond is currently selling for $945. It is convertible into 15 shares of common which presently sell for $57 per share. What is the conversion premium?
A. $90
B. $45
C. 57 shares
D. 13 shares
Answer c

2.) A $1,000 par value bond with a conversion price of $40 has a conversion ratio of:
A. $25.
B. 25 shares.
C. $40.
D. 40 shares.

answer D

3. The conversion premium is the greatest and the downside risk the smallest when the:
A. conversion value equals the pure bond value.
B. conversion value is greater than the pure bond value.
C. conversion value is less than the pure bond value.
D. stock price is expected to go up drastically.

answer b

4 The interest rate on convertibles is generally __________ the interest rate on similar nonconvertible instruments.
A. greater than
B. less than
C. the same as
D. at least twice
answer A

5. The principle device used by the corporation to force conversion is:
A. setting the conversion price above the current market price.
B. reducing the amount of interest payments.
C. buying bonds back at below par value.
D. a call provision.

answer A

6 Mirrlees Corp. has 10,000 6.25% bonds convertible into 40 shares per $1000 bond. Mirrlees has 600,000 outstanding shares. Mirrlees has a tax rate of 40%. The average Aa bond yield at time of issue was 10%. Compute basic earnings per share if after-tax earnings are $750,000.
A. $0.71
B. $1.25
C. $1.33
D. $1.51

answer C

7 Vickrey Technology has had net income of $2,000,000 in the current fiscal year. There are 1,000,000 shares of common stock outstanding along with convertible bonds, which have a total face value of $8 million. The $8 million is represented by 8,000 different $1,000 bonds. Each $1,000 bond pays 3 percent interest. The conversion ratio is 30. The firm is in a 30 percent tax bracket. What is Vickrey's diluted earnings per share?
A. $1.75
B. $1.81
C. $2.00
D. None of the above
answer D

I will go through each question and provide an explanation of how to find the correct answer.

1) To find the conversion premium, you need to calculate the difference between the market price of the convertible bond and the value of the underlying shares it can be converted into. In this case, the convertible bond is selling for $945, and it can be converted into 15 shares of common stock selling for $57 per share.

To find the conversion value, multiply the number of shares by the price per share: 15 shares * $57 = $855.

Now subtract the conversion value from the market price of the convertible bond: $945 - $855 = $90.

Therefore, the conversion premium is $90. The correct answer is A.

2) The conversion ratio is the number of shares you will receive for each bond when converting. In this case, the bond has a conversion price of $40, which means for every $40 of bonds, you can convert it into 1 share of common stock.

Since the bond has a par value of $1,000, divide the par value by the conversion price: $1,000 / $40 = 25.

Therefore, the conversion ratio is 25 shares. The correct answer is B.

3) The conversion premium is the difference between the conversion value and the pure bond value. The conversion value is the value of the shares received upon conversion, and the pure bond value is the value of the bond without the conversion option.

The conversion premium will be the greatest when the conversion value is greater than the pure bond value. Therefore, the correct answer is B.

4) Convertible bonds generally offer a lower interest rate compared to similar nonconvertible instruments. Therefore, the interest rate on convertibles is generally less than the interest rate on similar nonconvertible instruments. The correct answer is B.

5) The principal device used by a corporation to force conversion is to set the conversion price above the current market price. By setting the conversion price above the market price, bondholders are incentivized to convert their bonds into shares, as they would receive more value by converting than holding onto the bond. Therefore, the correct answer is A.

6) To compute basic earnings per share (EPS) for a convertible bond, first calculate the interest expense by multiplying the bond's face value by the coupon rate. In this case, the bond has a face value of $10,000,000 (10,000 bonds * $1,000 each) and a coupon rate of 6.25%. Therefore, the interest expense is $10,000,000 * 6.25% = $625,000.

Next, subtract the interest expense from the after-tax earnings to get the earnings available to common shareholders: $750,000 - $625,000 = $125,000.

Finally, divide the earnings available to common shareholders by the weighted average number of shares outstanding. The weighted average number of shares is calculated by adding the number of shares obtained from conversion to the number of existing shares. In this case, the number of shares obtained from conversion is 10,000 bonds * 40 shares per bond = 400,000 shares. The total number of shares is then 600,000 existing shares + 400,000 shares from conversion = 1,000,000 shares.

Therefore, the basic EPS is $125,000 / 1,000,000 shares = $0.125 per share. The correct answer is C.

7) To calculate diluted earnings per share (EPS), you need to consider the potential dilution from the convertible bonds.

First, calculate the interest expense for the convertible bonds by multiplying the face value of the bonds by the coupon rate: $8,000,000 * 3% = $240,000.

Next, calculate the diluted earnings by subtracting the interest expense from the net income: $2,000,000 - $240,000 = $1,760,000.

To calculate the diluted EPS, you need to consider the potential dilution from converting the convertible bonds into shares. The conversion ratio represents the number of shares received from each bond. In this case, the conversion ratio is 30.

To calculate the number of additional shares from conversion, multiply the total face value of the convertible bonds by the conversion ratio: $8,000,000 * 30 = 240,000 shares.

Finally, calculate the diluted EPS by dividing the diluted earnings by the sum of the existing shares and the additional shares from conversion: $1,760,000 / (1,000,000 existing shares + 240,000 additional shares) = $1.81 per share.

Therefore, the diluted EPS is $1.81 per share. The correct answer is B.