Find the conversion value of a convertible preferred stock that carries a conversion ratio of 1.8, given that the market price of the underlying common stock is $40 a share. Would there be any conversion premium if the convertible preferred were selling at $90 a share? If so, how much (in dollar and percentage terms)? Also, explain the concept of conversion parity, and then find the conversion parity of this issue, given that the preferred trades at $90 per share.
Answer to relevant QuestionsZack buys a 10% corporate bond with a current yield of 6%. How much did he pay for the bond? Which of the following bonds offers the highest current yield? a. A 91/2%, 20-year bond quoted at 973/4 b. A 16%, 15-year bond quoted at 1645/8 c. A 51/4%, 18-year bond quoted at 54 Briefly describe a bond ladder and note how and why an investor would use this investment strategy. What is a tax swap and why would it be used? What’s the difference between current yield and yield to maturity? Between promised yield and realized yield? How does YTC differ from YTM? A bond is currently selling in the market for $1,170.68. It has a coupon of 12% and a 20-year maturity. Using annual compounding, calculate the promised yield on this bond.
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