Swift Shoe has convertible bonds outstanding that are callable at $1,080. The bonds are convertible into 22

Question:

Swift Shoe has convertible bonds outstanding that are callable at $1,080. The bonds are convertible into 22 shares of common stock. The stock is currently selling for $59.25 per share.
a. If the firm announces that it is going to call the bonds at $1,080, what action are bondholders likely to take and why?

b. Assume that instead of the call feature, the firm has the right to drop the conversion ratio from 22 down to 20 after 5 years and down to 18 after 10 years. If the bonds have been outstanding for 4 years and 11 months, what will the price of the bonds be if the stock price is $60? Assume the bonds carry no conversion premium.
c. Further assume that you anticipate in two months that the common stock price will be up to $63.50. Considering the conversion feature, should you convert now or continue to hold the bond for at least two more months?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...

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