Question
A certain 6% annual coupon rate convertible bond(maturing in 20years) is convertible at theholder's option into 20 shares of common stock. The bond is currently
A certain 6% annual coupon rate convertible bond(maturing in 20years) is convertible at theholder's option into 20 shares of common stock. The bond is currently trading at $800. The stock(which pays 65 a share in annualdividends) is currently priced in the market at $31.28 a share.
a. What is thebond's conversionprice?
b. What is its conversionratio?
c. What is the conversion value of thisissue? What is its conversionparity?
d. What is the conversionpremium, in dollars and as apercentage?
e. What is thebond's paybackperiod?
f. If comparablyrated, nonconvertible bonds sell to yield 8%, what is the investment value of theconvertible?
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Fundamentals Of Multinational Finance
Authors: Michael Moffett, Arthur Stonehill, David Eiteman
6th Edition
0134472136, 978-0134472133
