Question: Consider the convertible bond issued by by Mechatronics: par value = $1, 000 coupon rate = 5% market price of convertible bond = $950 conversion

Consider the convertible bond issued by by Mechatronics:

  • par value = $1, 000
  • coupon rate = 5%
  • market price of convertible bond = $950
  • conversion ratio = 35
  • estimated straight value of bond = $800

Assume that the price of Mechatronics common stock is $20.

Calculate each of the following:

  1. conversion value
  2. Statutory conversion price
  3. conversion premium per share
  4. conversion premium ratio
  5. premium over straight value

If the bond could be exercised now, would you expect it to be converted?

Why do you think the bond prices at 950 vs the straight price of 800?

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