The Surplus Value Company had $10 million (face value) of convertible bonds outstanding in 2010. Each bond

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The Surplus Value Company had $10 million (face value) of convertible bonds outstanding in 2010. Each bond has the following features.

Face value ........................... $1000

Conversion price ................ $25

Current call price ................ 105 (percent of face value)

Current trading price ......... 130 (percent of face value)

Maturity ............................... 2017

Current stock price ......... $30 (per share)

Interest rate ...................... 10% (coupon as percent of face value)

a. What is the bond’s conversion value?

b. Can you explain why the bond is selling above conversion value?

c. Should Surplus call? What will happen if it does so?

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a With a 1000 face value for the bonds a bondholder can convert one bond into 100025 40 s...View the full answer

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Related Book For book-img-for-question

Principles of Corporate Finance

ISBN: 978-0077404895

10th Edition

Authors: Richard A. Brealey, Stewart C. Myers, Franklin Allen

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Question Posted: Dec 31, 2012 09:47 AM

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The Surplus Value Company had $10 million (face value) of convertible bonds outstanding in 2010. Each bond

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a With a 1000 face value for the bonds a bondholder can convert one bond into 100025 40 s...View the full answer

Principles of Corporate Finance

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