The Surplus Value Company had $10 million (face value) of convertible bonds outstanding in 2015. Each bond

Question:

The Surplus Value Company had $10 million (face value) of convertible bonds outstanding in 2015. Each bond has the following features.

a. What is the bond?s conversion value?

b. Can you explain why the bond is selling above conversion value?

c. Should Surplus call? What will happen if it does so?

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Principles of Corporate Finance

ISBN: 978-1260013900

13th edition

Authors: Richard Brealey, Stewart Myers, Franklin Allen

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Question Posted: Sep 27, 2019 12:46 PM

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The Surplus Value Company had $10 million (face value) of convertible bonds outstanding in 2015. Each bond

Question:

$1,000 Face value $25 Conversion price Current call price 105 (percent of face value) 130 (percent of face value) Current trading price 2022 Maturity $30 (per share) Current stock price 10% (coupon as percent of face value) Interest rate

Step by Step Answer:

a Conversion number of shares 1000 25 40 Conversion value 40 X 30 1200 b A conver...View the full answer

Principles of Corporate Finance

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