Six years ago, Binky Corp issued a bond that is convertible into the firm's common stock at a price of $25 per share. The convertible bond has a coupon of 8.1%, and original maturity of 20 years, semi-annual coupon payments, and is currently callable at 135% of the par value of $1,000. The bond is currently trading at $1,263 and Binky's stock is currently trading at $34.80 per share. Equivalent risk bonds without conversion provisions currently yield 8.30%.
Determine the value of the straight debt component and the equity of the bond.
How many shares of stock will you get if the bond is converted (conversion ratio)?
What is the current conversion value of the bonds?
Binky Corp has just announced a call on its convertible bonds. What should you do? Why?
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1. The value of straight debt component is the present value of interest and principal discounted at 8.3% the current yield. The semi annual interest on bond is 1,000X8.1%/2 = $40.5. Principal amount is $1,000. The remaining maturity ...
The solution explains some calculations relating to convertible bonds. The expert determines how many shares of stocks will get i the bonds are converted.