A Firm Has Both a Convertible Bond and a Convertible

question 45

Essay

A firm has both a convertible bond and a convertible preferred stock outstanding. The convertible bond has the following features:

The convertible preferred stock has the following features:
Annual dividend $2.25
Convertible into 2.5 shares of common stock
Callable at $25 a share.
Currently the common stock is selling for $13; the yield on non?convertible bonds is 10%, and the yield on comparable preferred stocks is 14%. What is the value of the above securities in terms of the common stock? What would be the value of each security if it lacked the conversion feature?
SOLUTIONS TO THE PROBLEMS

---

Definitions:

Nutrients

Substances obtained from food that are vital for growth, maintenance of the body, and energy supply.

Estuaries

Coastal water bodies where freshwater from rivers and streams mixes with saltwater from the ocean, creating an ecologically rich environment.

Salinity

The concentration of dissolved salts in water, affecting the density, biodiversity, and chemical behavior of aquatic environments.

Fluctuation

A variation or change in a state, quantity, or level, often without a set pattern or rhythm.