Layne Resources, Inc. has a $1,000 face value convertible bond outstanding that has a market value of

Question:

Layne Resources, Inc. has a $1,000 convertible bond outstanding that has a market value of $1,020. It has a rate of 5 percent and matures in 12 years. The conversion price is $20. The currently is selling for $16.
a. What is the conversion premium (in percent)?
b. At what price does the need to sell for the conversion value to be equal to the current bond price?
c. Assume the price goes up to $26 and the conversion premium goes down to $15, what will be the price of the bond?
d. What was the percentage gain in the price of the common stock? What was the percentage gain in the price of the bond?
e. What was the primary reason the conversion premium went down from $120 to $15? Common Stock
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