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 33.95 shares of Supreme Industries common stock per? $1000 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 $ 21.70 per? share." If on May? 17, Supreme Industries is trading as $ 24.20?, what is the value of common stock a holder of a? $1,000 note would? receive?

Answer 1

$1000 notes will get 33.95 shares which says 33 shares and teh cash equal to the 0.95 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 $24.20. Thus, a hoder of $1,000 will receive the following value:-

1) 33 shares at 24.50 which is equal to :-

  

2) The cash which is equal to 0.95 share. 1 share is valued at $24.50 thus 0.95 share will be valued at:-

  

Thus total value of the common stock will be :

Thus, the value received by holder of $1,000 is $831.8