Question

A certain 6​% annual coupon rate convertible bond​ (maturing in 20​ years) is convertible at the​ holder's option into 20 shares of common stock. The bond is currently trading at $800. The stock​ (which pays 85​¢ a share in annual​ dividends) is currently priced in the market at $35.68 a share.

a. What is the​ bond's conversion​ price? (Round to the nearest​ cent.)

b. What is its conversion​ ratio? (Round to the nearest​ integer.)

c. What is the conversion value of this​ issue? What is its conversion​ parity? (Round to the nearest​ cent.)

d. What is the conversion​ premium, in dollars and as a​ percentage? (Round to the nearest​ cent.) (Round to two decimal​ places.)

e. What is the​ bond's payback​ period? (Round to two decimal​ places.)

f. If comparably​ rated, nonconvertible bonds sell to yield 8%, what is the investment value of the​ convertible? (Round to the nearest​ cent.)

Answer 1