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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 Summary

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

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a. Conversion value.

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

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