Western Pipeline, Inc., has been very successful in the last five years. Its $1,000 par value convertible
Question:
Western Pipeline, Inc., has been very successful in the last five years. Its $1,000 par value convertible bonds have a conversion ratio of 28. The bonds have a quoted interest rate of 5 percent a year. The firm’s common stock is currently selling for $43.50 per share.
The current bond price has a conversion premium of $10 over the conversion value.
a. What is the current price of the bond?
b. What is the current yield on the bond (annual interest divided by the bond’s market price)?
c. If the common stock price goes down to $22.50 and the conversion premium goes up to $100, what will be the new current yield on the bond?
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... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...
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Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta