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    Convertible Bond

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    Suresh Singh, CFA, is analyzing a convertible bond. The characteristics of the bond and the underlying common stock are given in the following exhibit:

    Convertible Bond Characteristics
    Par value $1,000
    Annual coupon rate (annual pay) 6.5%
    Conversion ratio 22
    Market price 105% of par value
    Straight value 99% of par value

    Underlying Stock Characteristics
    Current market price $40 per share
    Annual cash dividend $1.20 per share

    Compute the bond's:
    a. Conversion value.
    b. Market conversion price.

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    Solution Preview

    a. Conversion value.

    The conversion value of the bond is given as - conversion ...

    Solution Summary

    The solution explains how to calculate the conversion value and conversion price of a convertible bond