Question
A certain 7% annual coupon rate convertible bond(maturing in 20years) is convertible at theholder's option into 23 shares of common stock. The bond is currently
A certain 7% annual coupon rate convertible bond(maturing in 20years) is convertible at theholder's option into 23 shares of common stock. The bond is currently trading at $820. The stock(which pays 58 a share in annualdividends) is currently priced in the market at $30.95 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 9 %, what is the investment value of theconvertible?
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Analysis for Financial Management
Authors: Robert Higgins
11th edition
77861787, 978-0077861780
