Vernon Glass Company has $20 million in 10 percent convertible bonds outstanding. The conversion ratio is 50,
Question:
Vernon Glass Company has $20 million in 10 percent convertible bonds outstanding.
The conversion ratio is 50, the share price is $19, and the bond matures in 10 years.
The bonds are currently selling at a conversion premium of $70 over their conversion value.
If the price of the common shares rises to $25 on this date next year, what would your rate of return be if you bought a convertible bond today and sold it in one year?
Assume that in one year the conversion premium has shrunk from $70 to $15.
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Conversion value Share price conversion ratio 19 50 ...View the full answer
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Related Book For 
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
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