Fifteen years ago, roop industries sold $400 million of convertible bonds. the bonds had a 40-year maturity,

Question:

Fifteen years ago, roop industries sold $400 million of convertible bonds. the bonds had a 40-year maturity, a 5.75% coupon rate, and paid interest annually. they were sold at their $1,000 par value, the conversion price was set at $62.75, and the common stock price was $55 per share. The bonds were subordinated debentures and were given an A rating; straight nonconvertible debentures of the same quality yielded about 8.75% at the time roop's bonds were issued.

a.) calculate the premium on the bonds-- that is, the percentage excess of the conversion price over the stock price at the time of issue.

b.) what is roop's annual before-tax interest savings on the convertible issue versus a straight-debt issue?

c.) at the time the bonds were issued, what was the value per bond of the conversion feature?

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