The Surplus Value Company had $10 million (face value) of convertible bonds outstanding in 2010. Each bond

Question:

The Surplus Value Company had $10 million (face value) of convertible bonds outstanding in 2010. Each bond has the following features.

Face value ........................... $1000

Conversion price ................ $25

Current call price ................ 105 (percent of face value)

Current trading price ......... 130 (percent of face value)

Maturity ............................... 2017

Current stock price ......... $30 (per share)

Interest rate ...................... 10% (coupon as percent of face value)

a. What is the bond’s conversion value?

b. Can you explain why the bond is selling above conversion value?

c. Should Surplus call? What will happen if it does so?

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Answer rating: 42% (14 reviews)

a With a 1000 face value for the bonds a bondholder can convert one bond into 100025 40 s...View the full answer

Answered By

Asim farooq

I have done MS finance and expertise in the field of Accounting, finance, cost accounting, security analysis and portfolio management and management, MS office is at my fingertips, I want my client to take advantage of my practical knowledge. I have been mentoring my client on a freelancer website from last two years, Currently I am working in Telecom company as a financial analyst and before that working as an accountant with Pepsi for one year. I also join a nonprofit organization as a finance assistant to my job duties are making payment to client after tax calculation, I have started my professional career from teaching I was teaching to a master's level student for two years in the evening. My Expert Service Financial accounting, Financial management, Cost accounting, Human resource management, Business communication and report writing. Financial accounting : • Journal entries • Financial statements including balance sheet, Profit & Loss account, Cash flow statement • Adjustment entries • Ratio analysis • Accounting concepts • Single entry accounting • Double entry accounting • Bills of exchange • Bank reconciliation statements Cost accounting : • Budgeting • Job order costing • Process costing • Cost of goods sold Financial management : • Capital budgeting • Net Present Value (NPV) • Internal Rate of Return (IRR) • Payback period • Discounted cash flows • Financial analysis • Capital assets pricing model • Simple interest, Compound interest & annuities

4.40+ 65+ Reviews 86+ Question Solved

Related Book For book-img-for-question

Principles of Corporate Finance

ISBN: 978-0077404895

10th Edition

Authors: Richard A. Brealey, Stewart C. Myers, Franklin Allen

See More Books

Question Posted: Dec 31, 2012 09:47 AM

See More Questions

The Surplus Value Company had $10 million (face value) of convertible bonds outstanding in 2010. Each bond

Question:

Step by Step Answer:

a With a 1000 face value for the bonds a bondholder can convert one bond into 100025 40 s...View the full answer

Principles of Corporate Finance

Students also viewed these Corporate Finance questions