Assume that:

Convertible into 50 shares at any time.
Stock price is now $30 a share.
Call price ofbond =$1,060.
Common stock dividend $1.00 per year.

a. The investor (an individual) should initiate the conversion.
Yes Q No Q Explain.

b. The firm should call the bond. Yes Q No Q Explain.

c. With the facts as stated above, the bond price should be very slightly above $ _

d. Now assume management believes strongly that the stock price will go up (it has published this belief). The firm should still call the bond.
Yes Q No Q Explain.

Transcribed Image Text:

tp .396, k = .08 interest rate of convertible t = .34, B = $1,000 face value