Company X's convertible bond with 3 years till-maturity has the following features. Issue Price $1,000 at...
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Company X's convertible bond with 3 years till-maturity has the following features. Issue Price $1,000 at par Conversion Period Initial Conversion Price Threshold Dividend* Up till Bond maturity $20 per share $0.25 per share Change of Control Conversion Price** $15 per share Current common stock share $16.60 price Current Convertible Bond $1,080 price * When dividends to be issued exceed this threshold. the bond indenture requires the issuer to provide for conversion ratio to increase. **When the firm will be taken over by or be merged with another firm, the issuer must allow for bond- holder to convert at the change-of-control conversion price over a stated window prior to the change of control. (a) What is the estimated market conversion premium per share of X's convertible bond? (b) If there is announcement of a takeover of X by a larger firm, and change of control price is effected, would the CB holder convert immediately before the convertible bond price and the stock price change? (c) If the announcement in (b) is cancelled, but instead there is announcement that X's share price is expected to rise to $23 by the following year. What would be the estimated expected return of the convertible bond over the next year? Company X's convertible bond with 3 years till-maturity has the following features. Issue Price $1,000 at par Conversion Period Initial Conversion Price Threshold Dividend* Up till Bond maturity $20 per share $0.25 per share Change of Control Conversion Price** $15 per share Current common stock share $16.60 price Current Convertible Bond $1,080 price * When dividends to be issued exceed this threshold. the bond indenture requires the issuer to provide for conversion ratio to increase. **When the firm will be taken over by or be merged with another firm, the issuer must allow for bond- holder to convert at the change-of-control conversion price over a stated window prior to the change of control. (a) What is the estimated market conversion premium per share of X's convertible bond? (b) If there is announcement of a takeover of X by a larger firm, and change of control price is effected, would the CB holder convert immediately before the convertible bond price and the stock price change? (c) If the announcement in (b) is cancelled, but instead there is announcement that X's share price is expected to rise to $23 by the following year. What would be the estimated expected return of the convertible bond over the next year?
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The formula to calculate the market conversion premium per share is Market Conversion Premium per Sh... View the full answer
Related Book For
Financial Reporting and Analysis
ISBN: 978-0078025679
6th edition
Authors: Flawrence Revsine, Daniel Collins, Bruce, Mittelstaedt, Leon
Posted Date:
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