Question
Schenkel, Inc., has a $1,000 face value convertible bond issue that is currently selling in the market for $990. Each bond is exchangeable at any
Schenkel, Inc., has a $1,000 face value convertible bond issue that is currently selling in the market for $990. Each bond is exchangeable at any time for 24 shares of the company's stock. The convertible bond has a 6.9 percent coupon, payable semiannually. Similar nonconvertible bonds are priced to yield 9 percent. The bond matures in 10 years. Stock in Schenkel sells for $40 per share.
A-1. What is the conversion ratio?
A-2. What is the conversion price?
A-3. What is the conversion premium?
B-1. What is the straight bond value?
B-2. What is the conversion value?
C. What would the stock price have to be for the conversion value and the straight bond value to be equal?
D. What is the option value of the bond?
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Fundamentals of Investing
Authors: Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk
12th edition
978-0133075403, 133075354, 9780133423938, 133075400, 013342393X, 978-0133075359
