A convertible bond has a face value of $1,000, and the conversion price is $50 per share Answer
- A
convertible bond has a face value of $1,000, and the conversion price is $50 per
share. The stock is selling at $42 per share. The bond pays $60 per year
interest and is selling in the market for $930. It matures in 15 years. Market
rates are 10 percent per year.
a. What
is the conversion ratio?
$1,000/
$50 = 20 shares
b. What
is the conversion value?
20 *
$42 = $840
c. What
is the conversion premium (in dollars and percent)?
$160
or 16%
d. What
is the floor value or pure bond value?
$1,000
* 10% = 100 * 15 = $1,500 + $1,000 = $2,500 is the floor value
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