Question
Starset, 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
Starset, 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 26 shares of the companys stock. The convertible bond has a 5.8 percent coupon, payable semiannually. Similar nonconvertible bonds are priced to yield 7 percent. The bond matures in 20 years. Stock in the company sells for $35 per share. |
a-1 | What is the conversion ratio? |
Conversion ratio |
a-2 | What is the conversion price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
Conversion price | $ |
a-3 | What is the conversion premium? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
Conversion premium | % |
b-1 | What is the straight bond value? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
Straight bond value | $ |
b-2 | What is the conversion value? (Do not round intermediate calculations and round your answer to the nearest whole dollar amount, e.g., 32.) |
Conversion value | $ |
c. | What would the stock price have to be for the conversion value and the straight bond value to be equal? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
Stock price | $ |
d. | What is the option value of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
Option value | $ |
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