Question
A certain 5% annual coupon rate convertible bond ($1,000 par value, maturing in 20 years) is convertible at the holder's option into 17 shares of
A certain
5%
annual coupon rate convertible bond ($1,000 par value, maturing in 20 years) is convertible at the holder's option into
17
shares of common stock. The bond is currently trading at
$790.
The stock (which pays
71
a share in annualdividends) is currently priced in the market at
$34.81
a share.
a. What is the bond's conversion price?
b. What is its conversion ratio?
c. What is the conversion value of this issue? What is its conversion parity?
d. What is the conversion premium, in dollars and as a percentage?
e. What is the bond's payback period?
f. If comparably rated, nonconvertible bonds sell to yield
7%,
what is the investment value of the convertible?
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Financial Management In The Public Sector Tools Applications And Cases
Authors: Xiaohu Wang
2nd Edition
0765625229, 9780765625229
