FREE Trial

Muscles Fitness Center, Inc., issued convertible bonds with a conversion price of $75. The bonds are available

Question:

Muscles Fitness Center, Inc., issued convertible bonds with a conversion price of $75. The bonds are available for immediate conversion. The current price of the company’s common stock is $67 per share. The current market price of the convertible bonds is $975. The convertible bonds’ straight value is unknown. 

a. What is the minimum price for the convertible bonds? 

b. Explain the difference between the current market price of each convertible bond and the value of the common stock into which it can be immediately converted.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...
Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Answer rating: 85% (14 reviews)

a Using the conversion price we can determine the conversion ratio which is Conversion ratio 100075 ...View the full answer


answer-question-section
Answered By
tutor-profile-image
Ehsan Mahmood
I’ve earned Masters Degree in Business Studies and specialized in Accounts & Finance. Couple with this, I have earned BS Sociology from renowned institute of Pakistan. Moreover, I have humongous teaching experience at Graduate and Post-graduate level to Business and humanities students along with more than 7 years of teaching experience to my foreign students Online. I’m also professional writer and write for numerous academic journals pertaining to educational institutes periodically.
4.90+ 248+ Reviews 287+ Question Solved
Related Book For  book-img-for-question
Corporate Finance

Corporate Finance

ISBN: 978-1259918940

12th edition

Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan

See More Books
Question Posted:
See More Questions

Related Video

Callable bond: A bond that can be redeemed by the issuer before the maturity date, potentially leaving the bondholder without future interest payments. They usually offer higher yields than non-callable bonds. Puttable bond: A bond that gives the bondholder the right to sell the bond back to the issuer before the maturity date, providing flexibility to the bondholder. They typically offer lower yields than non-puttable bonds. Convertible bond: A bond that can be converted into a predetermined number of shares of the issuing company\'s common stock at the bondholder\'s discretion. They offer the potential for capital appreciation in addition to periodic interest payments and typically offer lower yields than non-convertible bonds. Zero coupon bond: A bond that does not pay periodic interest payments, but instead is sold at a deep discount to its face value and redeemed at face value upon maturity, providing a capital gain to the investor. They are often used to fund long-term projects and have longer maturities than other bonds.

Students also viewed these Business questions

The Outlaw - ISBN: 1737179059 - Free Book