Zippy Corporation just sold $30 million of convertible bonds with a conversion ratio of 40. Each $1,000

Question:

Zippy Corporation just sold $30 million of convertible bonds with a conversion ratio of 40. Each $1,000 bond is convertible into 25 shares of Zippy’s stock.

a. What is the conversion price of Zippy’s stock?

b. If the current price of Zippy’s stock is $15 and the Company’s annual stock return is normally distributed with a standard deviation of $5, what is the probability that investors will find it attractive to convert the bond into Zippy stock in the next year?

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...