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Consider the convertible bond by Miser Electronics: par value is $1, 000; coupon rate is 8.5%; market price of convertible bond is $900; conversion ratio
Consider the convertible bond by Miser Electronics: par value is $1, 000; coupon rate is 8.5%; market price of convertible bond is $900; conversion ratio is 30; estimated straight value of bond is $700. Assume that the price of Miser Electronics common stock is $25 and that the dividend per share is $1 per annum. Now suppose that the price of the common stock increases from $25 to $54. Why would the return be higher by investing in the common stock directly rather than by investing in the convertible bond?
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