A Convertible Bond Has a Face Value of $1000 and the Conversion

question 21

Essay

A convertible bond has a face value of $1000 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 percent 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? (use annual analysis)
(e)Compute the downside risk as a percentage.

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Definitions:

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A theory in psychology, proposed by Abraham Maslow, which comprises a five-tier model of human needs, depicted as hierarchical levels within a pyramid.

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Deficit Principle

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Compensation

The combination of salary, wages, and benefits that an employee receives in exchange for their work.