Question
Lucky Dog Pet Food has a $1000 convertible bond outstanding with a conversion price of $12.00 per share. The bond pays an interest payment of
Lucky Dog Pet Food has a $1000 convertible bond outstanding with a conversion price of $12.00 per share. The bond pays an interest payment of $80 annually and matures in 20 years unless converted into common stock earlier or called by the company. The common stock currently sells for $11.25 per share. If the bond sold at its theoretical bond value it would be priced competitively to yield 10% with bonds of the same risk class. A. How many shares of stock are received on conversion? B) What is the conversion value? C) What is the pure bond value?
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