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    Rate of return on convertible bond

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    Laser Electronic Company has $30 million in 8 percent convertible bonds outstanding. The convertible 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 Electronic Company has $30 million in 8 percent convertible bonds outstanding. The convertible 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 ...

    Solution Summary

    Calculates rate of return on a convertible bond.

    $2.19

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