AMD 10-year convertible bond issue in which each investor could exchange his or her $1,000 par value bond for 125 shares of AMD common stock. When these bonds were issued, AMD’s stock was trading for $6 per share.
a. What is the conversion ratio of AMD’s convertible bonds?
b. What is the conversion price associated with AMD’s convertible bonds?
c. What was the conversion value of AMD’s convertible bonds at the time they were issued?
d. By how much did AMD’s stock price have to increase (from its starting value of $6 per share) before it would make sense for investors to exchange their bonds for common stock?
e. If AMD had attempted to issue nonconvertible bonds, the company would have had to pay an interest rate of 3.5%. What was the straight bond value of AMD’s convertible bonds when they were issued? (For simplicity, assume annual interest payments.)