Why are investors willing to pay a premium over the theoretical value (pure bond value or conversion value)?
Answer to relevant QuestionsWhy is it said that convertible securities have a floor price?You buy a stock option with an exercise price of $50. The cost of the option is $4. If the stock ends up at $56, indicate whether you have a profit or loss with a call option? With a put option?The bonds of Goniff Bank & Trust have a conversion premium of $90. Their conversion price is $20. The common stock price is $16.50. What is the price of the convertible bonds?Vernon Glass Company has $15 million in 10 percent convertible bonds outstanding. The conversion ratio is 40, the stock price is $17, and the bond matures in 10 years. The bonds are currently selling at a conversion premium ...Fondren Exploration Ltd. has 1,000 convertible bonds ($1,000 par value) outstanding, each of which may be converted to 50 shares of stock. The $1 million worth of bonds has 25 years to maturity. The current price of the ...
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