Question

Supreme Industries issues the following announcement to holders of an issue of callable, convertible notes: "Prior to the close of business on May 17, 2008, holders may convert their Notes into shares of Supreme Industries common stock at 33.25 shares of Supreme Industries common stock per $1,000 principal amount of the Notes. Cash will be paid in lieu of fractional shares. On April 16, 2008, the last reported sale price of Supreme Industries common stock on the NYSE was $21.60 per share." If on May 17, Supreme Industries is trading as $24.60, what is the value of common stock a holder of a $1,000 note would receive?

Answer 1

Answer:

The value received by holder of $1,000 is $817.95

Explanation:

$1000 notes will get 33 shares which says 30 shares and 6.15 cash equal to the 0.25 shares value. The convertible Bonds (CB) are converted at the will of holders into the shares or cash. The conversion price is the trading price of the share which is $24.60. Thus, a hoder of $1,000 will receive the following value:-

1) 33 shares at 24.60 which is equal to :-

=33\times 24.60=811.8

2) The cash which is equal to 0.25 share. 1 share is valued at $24.60 thus 0.25 share will be valued at:-

\frac{24.60}{1}\times 0.25 = 6.15

Thus total value of the common stock will be :

811.8 + 6.15 = $817.95

Thus, the value received by holder of $1,000 is $817.95