A Convertible Bond Has a Face Value of $1,000 and the Conversion

question 60

Essay

A convertible bond has a face value of $1,000 and the conversion price is $40 per share. The stock is selling at $30 per share. The bond pays $65 per year in interest and is selling in the market for $950. It matures in 7 years. Market rates are 10% annually. (a) What is the conversion ratio?
(b) What is the conversion value?
(c) What is the conversion premium (in dollars and percent)?
(d) What is the floor or pure bond value (using annual analysis)?
(e) Compute the downside risk as a percentage.

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Definitions:

Persuasion

The process of convincing someone to do or believe something through reasoning or the use of emotion.

Lower Power Parties

Those participants in a negotiation or conflict who possess less influence, resources, or status compared to other parties involved.

Business Deals

Agreements or transactions between businesses or individuals for the purchase, sale, or exchange of goods, services, or information.

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Major or influential entities in a particular area, industry, or context, often having significant power or influence.