A Firm Has Both a Convertible Bond and a Convertible

question 47

Essay

A firm has both a convertible bond and a convertible preferred stock outstanding. The convertible bond has the following features:
      Coupon         6.5%
      Maturity date   10 years
      Exercise price $20
      Principal   $1,000
      Call price  $1,065
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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?

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Definitions:

Waking Awareness

A state of consciousness where an individual is fully alert, attentive, and engaged with their surroundings.

Altered States

Conditions of consciousness that differ significantly from one's normal waking state, such as those induced by sleep, meditation, or drug use.

States Consciousness

Varying levels of awareness, including wakefulness, sleep, dreaming, and other altered states of consciousness.

Selective Attention

Selective attention is the process by which a person focuses on one particular object or task while ignoring other stimuli or information.