Question
October Industries has a convertible bond outstanding. The bonds have a par value of $1,000 and currently trade in the marketplace at $880. The bonds
October Industries has a convertible bond outstanding. The bonds have a par value of $1,000 and currently trade in the marketplace at $880. The bonds bear a coupon rate of 7% and mature in 20 years. The conversion price is $40 and the companys common stock is currently selling for $32 per share. Interest is paid annually.
- What is the conversion value of the bond?
- Similar bonds, without the conversion feature, are currently yielding 10%. What is the pure bond value of October Industries convertible bond?
- What is the conversion premium of the bond?
- If the market value of October Industries shares were to increase to $44 and the conversion premium were to stay the same, what would be the market price of the bonds?
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Use The News To Separate The Noise From The Investment Nuggets And Make Money In Any Economy
Authors: Maria Bartiromo
1st Edition
0061873489
