Question
Sherwood Forest Products has a convertible bond quoted in the bond market at 95. (Bond quotes represent percentage of par value. Thus, 70 represents $700,
Sherwood Forest Products has a convertible bond quoted in the bond market at 95. (Bond quotes represent percentage of par value. Thus, 70 represents $700, 80 represents $800, and so on.) It matures in 10 years and carries a coupon rate of 5.5 percent. The conversion ratio is 10, and the common stock is currently selling for $86 per share on the TSX. The bond maturity value is $1,000.
a.Calculate the conversion premium.
Conversion premium$
b.At what price does the common stock need to sell for the conversion value to be equal to the current bond price?(Round the final answer to 2 decimal places.)
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