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# Convertible Bonds-Laser Electronics

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Laser Electronics Company has \$30 million in 8 % convertible bonds outstanding. The conversion ratio is 50; the stock price is \$17; and the bond matures in 15 years. The bonds are currently selling at a conversion premium of \$60 over their conversion value.

If the price of the common stock rises to \$23 on this date next year, what would your rate of return be if you bought a convertible bond today and sold it in one year? Assume on this date next year, the conversion premium has shrunk from \$60 to \$10.

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#### Solution Preview

Laser Electronics Company has \$30 million in 8 % convertible bonds outstanding. The conversion ratio is 50; the stock price is \$17; and the bond matures in 15 years. The bonds are currently selling at a conversion premium of \$60 over their conversion value.
If the price of the common stock rises to \$23 on this date next year, what would your rate of return be if you bought a convertible bond today and sold it in one ...

#### Solution Summary

The solution calculates rate of return on a convertible bond

\$2.19