Question
Reynolds Technology has a convertible bond outstanding, trading in the marketplace at $950. The par value is $1,000, the coupon rate is 7 percent, and
Reynolds Technology has a convertible bond outstanding, trading in the marketplace at $950. The par value is $1,000, the coupon rate is 7 percent, and the bond matures in 20 years. The conversion ratio is 25, and the companys common stock is selling for $35 per share. Interest is paid semiannually.
a. What is the conversion value? (Do not round intermediate calculations and round your answer to 2 decimal places.)
b. If similar bonds, which are not convertible, are currently yielding 10 percent, what is the pure bond value of this convertible bond? (Use semiannual analysis.) Use Appendix B and Appendix D as an approximate answer, but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started