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Conversion of Bonds

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An analyst has recently informed you that at the issuance of a company's convertible bonds, one of the two following sets of relationships existed:

Scenario A: Face Value of Bond: $1,000; Straight Value of Convertible Bond: $900; Market Value of Convertible Bond: $1,000

Scenario B: Face Value of Bond: $1,000; Straight Value of Convertible Bond: $950; Market Value of Convertible Bond: $900

Assume the bonds are available for immediate conversion. Which of the two scenarios do you believe is more likely? Why?

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https://brainmass.com/business/convertible-bonds/conversion-bonds-289177

Solution Preview

First, the straight value of a convertible bond is what the convertible bond would sell for if it could not be converted into common stock.
Second, therefore it is more likely that ...

Solution Summary

The conversion of bonds are determined.

$2.19