Alicia, Inc., has a $1,000 face value convertible bond issue that is currently selling in the market
Question:
Alicia, Inc., has a $1,000 face value convertible bond issue that is currently selling in the market for $950. Each bond is exchangeable at any time for 25 shares of the company’s stock. The convertible bond has a 7 percent coupon, payable semiannually. Similar nonconvertible bonds are priced to yield 9 percent. The bond matures in 10 years. Stock in Alicia sells for $37 per share.
a. What are the conversion ratio, conversion price, and conversion premium?
b. What is the straight bond value? The conversion value?
c. In part (b), what would the stock price have to be for the conversion value and the straight bond value to be equal?
d. What is the option value of the bond?
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a The conversion ratio is 25 shares per bond the conversion price is 38 950 m...View the full answer
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Related Book For 
Fundamentals Of Corporate Finance
ISBN: 9780072553079
6th Edition
Authors: Stephen A. Ross, Randolph Westerfield, Bradford D. Jordan
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