Question: HCB has just issued 2 0 - year $ 1 0 0 0 par value convertible bonds with a coupon rate of 6 % and

HCB has just issued 20-year $1000 par value convertible bonds with a coupon rate of 6% and they are each worth $1000. Each bond can be converted into 25 shares of common stock. What is the conversion price of the bond? If HCB is trading for $30 per share, then what is the conversion value of the bond? If HCB's straight-debt yield to maturity is 7%, then what is the value of the option to convert? Which answers are different if, instead of trading at par ($1,000), the bonds are currently trading at $1,100 each? Answers: Conversion price = $40; conversion value = $750; value of conversion option = $105.94; If the bonds are trading at $1,100 then the value of the conversion option = $205.94.

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