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Determining values-Convertible bond Eastern Clock Company has an outstanding issue of convertible bonds with a $1,000 par value These bonds are convertible into 50 shares of common stock They have a 10% annual coupon interest rate and a 20-year maturity The interest rate on a straight bond of similar risk is currently 12% a. Calculate the straight bond value of the bond b. Calculate the conversion (or stock) value of the bond when the market price of the common stock is $15, $20, $23, $30, and $45 per share. c. For each of the stock prices given in part b, at what price would you expect the bond to sell? Why? d. What is the least you would expect the bond to sell for, regardless of the common stock price behavior? a. The straight value of the bond is S (Round to the nearest cent) b. The conversion (or stock) value of the bond when the market price of the common stock is $15 per share is $ (Round to the nearest dollar) The conversion (or stock) value of the bond when the market price of the common stock is $20 per share is $ (Round to the nearest dollar.) The conversion (or stock) value of the bond when the market price of the common stock is $23 per share is S (Round to the nearest dollar.) The conversion (or stock) value of the bond when the market price of the common stock is $30 per share is S (Round to the nearest dollar.) The conversion (or stock) value of the bond when the market price of the common stock is $45 per share is $ (Round to the nearest dollar.) c. For the stock price of $15, the price you would expect the bond to sell at is $ (Round to the nearest cent) For the stock price of $20, the price you would expect the bond to sell at is $ (Round to the nearest dollar) For the stock price of $23, the price you would expect the bond to sell at is $ (Round to the nearest dollar.) For the stock price of $30, the price you would expect the bond to sell at is $ (Round to the nearest dollar. ) For the stock price of $45, the price you would expect the bond to sell at is $ (Round to the nearest dollar.) Why would you expect the bonds to sell at these prices? (Select the best answer below.) O A. As the share price increases, the bond will start trading at a premium to the pure bond value due to the increased probability of a profitable conversion. At higher prices, the bond will trade at its conversion value. OB. As the share price increases, the bond will start trading at a discount to the pure bond value due to the increased probability of a profitable conversion. At higher prices, the bond will trade at its conversion value. OC. As the share price decreases, the bond will start trading at a premium to the pure bond value due to the increased probability of a profitable conversion. At higher prices, the bond will trade at its conversion value. O D. As the share price decreases, the bond will start trading at a premium to the pure bond value due to the increased probability of a profitable conversion. At higher prices, the bond will trade at below its conversion value. d. The least you would expect the bond to sell for, regardless of the common stock price behavior is $ (Round to the nearest cent)
