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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

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