Question
A certain 5% annual coupon rate convertible bond (maturing in 20 years) is convertible at the holder's option into 17 shares of common stock. The
A certain 5% annual coupon rate convertible bond (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 53 a share in annual dividends) is currently priced in the market at $31.12 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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The Oxford Handbook Of Credit Derivatives
Authors: Alexander Lipton, Andrew Rennie
1st Edition
0199546789, 978-0199546787
