A $1,000 thirty-year bond paying .08 interest is convertible into 20 shares of cornmon stock. The stock
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A $1,000 thirty-year bond paying .08 interest is convertible into 20 shares of cornmon stock. The stock price at time of issue is $40.
The bond is callable at $1,050. The corporate tax rate is .35.
Investors are not taxed.
a. The conversion price is $____________
b. The initial conversion premium is _____________%.
c. The bonds initial conversion value is $_____________
d. Assume that after one year the stock price is $70 and the stock is paying $2 per share per year dividend. Should the investor convert?
e. (Continue d). Should the ftnn force conversion?
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