The following facts apply to a convertible bond making semiannual payments: Conversion price...............................................$38/share Coupon rate.........................................................2.6% Par value...........................................................$1,000

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The following facts apply to a convertible bond making semiannual payments:

Conversion price...............................................$38/share

Coupon rate.........................................................2.6%

Par value...........................................................$1,000

Yield on nonconvertible debentures of same quality.............5%

Maturity..........................................................30 years

Market price of stock..........................................$34/share

a. What is the minimum price at which the convertible should sell?

b. What accounts for the premium of the market price of a convertible bond over the total market value of the common stock into which it can be converted?



Debentures
Debenture DefinitionDebentures are corporate loan instruments secured against the promise by the issuer to pay interest and principal. The holder of the debenture is promised to be paid a periodic interest and principal at the term. Companies who...
Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...
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Related Book For  answer-question

Fundamentals of Corporate Finance

ISBN: 978-0077861704

11th edition

Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan

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