A convertible bond issued has the following characteristics. Please calculate (1) minimum value and (2) market conversion
Question:
A convertible bond issued has the following characteristics. Please calculate (1) minimum value and (2) market conversion premium.
Maturity = 12 years
Coupon rate = 7%
Coupon payment twice a year
Conversion ratio = 45
Par value = $1000
Market price of convertible bond = $1575
Market price of common stock = $30
Yield on a comparable straight bond = 6%
(1) What is the minimum price of the bond?
(2) What is conversion premium per share?
(3) What is the investment return of the convertible bond when the stock price increases to $55?
(4) What is the investment return of the common stock when the stock price increases to $55?
(5) What is the investment return of the convertible bond when the stock price drops to $10?
(6) What is the investment return of the common stock when the stock price drops to $10?
Fundamentals Of Investing
ISBN: 9780135175217
14th Edition
Authors: Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk