Sherwood Forest Products has a convertible bond quoted on the NYSE bond market at 90. (Bond quotes represent the percentage of par value. Thus, 70 represents $700, 80 represents $800, and so on.) It matures in 10 years and carries a coupon rate of 5½ percent. The conversion ratio is 25, and the common stock is currently selling for $33 per share on the NYSE.
a. Compute the conversion premium.
b. At what price does the common stock need to sell for the conversion value to be equal to the current bond price?

  • CreatedOctober 14, 2014
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