Consider a convertible bond as follows: par value = $ 1 , 0 0 0 ; coupon
Question:
Consider a convertible bond as follows:
par value $;
coupon rate
market price of convertible bond $
conversion ratio
estimated straight value of bond $
yield to maturity of straight bond
If the price of the common stock increases from $ to $
What will be the approximate return realized from investing in the convertible bond? Note: approximate the realized return by assuming the bond will be converted at $ points
What would be the return realized if $ had been invested in the common stock and the stock price increased to $ points
Why would the return on investing in the common stock directly be higher than investing in the convertible bond?
Corporate Finance
ISBN: 9780077173630
3rd Edition
Authors: David Hillier, Stephen A. Ross, Randolph W. Westerfield, Bradford D. Jordan, Jeffrey F. Jaffe