Purchase Solution

Conversion Price and Value

Not what you're looking for?

Ask Custom Question

Eastern Digital Corp. has a convertible bond outstanding with a coupon rate of 9 percent and a maturity date of 20 years. It is rated Aa, and competitive, non convertible bonds of the same rick class carry a 10 percent return. The conversion ratio is 40. Currently teh common stock is selling for $18.25 per share on the New York Stock Exchange.

a. What is the conversion price?
b. What is the conversion value?
c. Compare the pure bond value. (Use semiannual analysis)
d, Draw a graph that includes the floor priced and the conversion value but not the convertible bond price. For the stock price on the horizontal axis, use 10,20,30,40,and 50.
e. Which will influence the bond price more-the pure bond value (floor value) or the conversion premium?

Purchase this Solution

Solution Preview

a. What is the conversion price?
conversion price is the price at which a given convertible security can be converted to common stock. The conversion price is specified when the security is issued. The number of shares to be received is the principal amount of the security divided by the conversion price (after the conversion price is adjusted for stock splits and dividends).
conversion price=Bond Value / conversion ...

Purchase this Solution

Free BrainMass Quizzes
Organizational Behavior (OB)

The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.

Situational Leadership

This quiz will help you better understand Situational Leadership and its theories.

Cost Concepts: Analyzing Costs in Managerial Accounting

This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.

Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.

Operations Management

This quiz tests a student's knowledge about Operations Management