1. 19.

Convertible calculations [LO 24.6] Lake Cooroibah Paddle Boards has a

$1 000 face value convertible bond issue that is currently selling in the market for $960. Each bond is exchangeable at any time for 18 of the company’s shares. The convertible bond has a 4.9 per cent coupon, payable semiannually. Similar non-convertible bonds are priced to yield 7.4 per cent. The bond matures in 20 years. Shares in the company sell for $45 per share.

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

2. What is the straight bond value? The conversion value?

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

4. What is the option value of the bond?