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Convertible Calculations Rayne Inc., has a $ 1.000 face value convertible bond issue that is currently selling

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Convertible Calculations Rayne Inc., has a $ 1.000 face value convertible bond issue that is currently selling in the market for $950. Each bond is exchangeable at any time for 25 shares of the company’s stock. The convertible bond has a 7 percent coupon payable semiannually. Similar nonconvertible bonds are priced to yield 10 percent. The bond matures in 10 years. Stock in Rayne sells for $36 per share.

a. What are the conversion ratio, conversion price, and conversion premium?

b. What is the straight bond value the conversion value?

c. In part (b), what would the stock price have to be for the conversion value and the straight bond value to be equal?

d. What is the option value of the bond?

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...
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a The conversion ratio is given at 25 The conversion price is the par value divided by the conversio...View the full answer


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Stocks (also known as equities) are securities that represent ownership in a company. They are issued by companies to raise capital, and when an individual buys stocks, they become a shareholder in that company. Investing in stocks can be a way for individuals to potentially earn a return on their investment through dividends and capital appreciation. However, investing in stocks also carries a level of risk, as the value of the stock can fluctuate based on various factors such as the financial performance of the company and general market conditions. For companies, issuing stocks can be a way to raise funds for growth and expansion. When a company goes public by issuing an initial public offering (IPO), it can raise significant capital by selling ownership stakes to the public. Companies can also issue additional stock offerings to raise additional capital as needed.

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