Iowa Meat Packers, Inc. has a convertible bond quoted on the NYSE bond market at 85. (Bond

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Iowa Meat Packers, Inc. has a convertible bond quoted on the NYSE bond market at 85. (Bond quotes represent percentage of par value. Thus 70 represents $700, 80 represents $800, and so on.) The bond matures in 15 years and carries a coupon rate of 6½ percent. The conversion price is $20, and the common stock is currently selling for $12 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?

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...
Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...
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Foundations of Financial Management

ISBN: 978-1259194078

15th edition

Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen

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