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:

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In computing, a collection of software or data files packaged together, often for installation or distribution purposes.

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Points in a network where lines intersect or branch, acting as a connection or redistribution point.

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Layers of tissue where the cell boundaries are not distinct, forming a multinucleated mass of cytoplasm.