Manpower Electric Company has 6 percent convertible bonds outstanding. Each bond has a $1,000 par value. The
Question:
a. What is the conversion value of the bond?
b. Assume after one year that the common stock price falls to $30.50. What is the conversion value of the bond?
c. Also assume that after one year interest rates go up to 10 percent on similar bonds. There are 15 years left to maturity. What is the pure value of the bond? Use semiannual analysis.
d. Will the conversion value of the bond (part b) or the pure value of the bond (part c) have a stronger influence on its price in the market?
e. If the bond trades in the market at its pure bond value, what would be the conversion premium (stated as a percentage of the conversion value)?
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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a 20 shares 36 per share 720 conversion value b 20 shares 305...View the full answer
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Related Book For 
Foundations of Financial Management
ISBN: 978-1259194078
15th edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen
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