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    Saunders Corporation's Convertible Bonds

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    The following data apply to Saunders Corporation's convertible bonds:

    Maturity 10 Stock Price $30.00
    Par Value $1,000 Conversion Price $35.00
    Annual Coupon 5% Straight-Debt Yield 8%

    1) What is the bond's conversion ratio?

    A. 27.14
    B. 28.57
    C. 30.00
    D. 31.50
    E. 33.08

    2) What is the bond's conversion value?

    A. $698.15
    B. $734.89
    C. $773.57
    D. $814.29
    E. $857.14

    3) What is the bond's straight-debt value?

    A. $684.78
    B. $720.82
    C. $758.76
    D. $798.70
    E. $838.63

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    https://brainmass.com/business/convertible-bonds/saunders-corporations-convertible-bonds-146625

    Solution Preview

    The following data apply to Saunders Corporation's convertible bonds:

    Maturity 10 Stock Price $30.00
    Par Value $1,000 Conversion Price $35.00
    Annual Coupon 5% Straight-Debt Yield 8%

    1) What is the bond's conversion ratio?

    A. 27.14
    B. 28.57
    C. 30.00
    D. 31.50
    E. 33.08

    Answer: B. 28.57
    Conversion ratio = Par value / Conversion Price= 28.5714 =1000/35

    2) What is the bond's conversion value?

    A. $698.15
    B. $734.89
    C. $773.57
    D. $814.29
    E. $857.14

    Answer: E. $857.14

    Conversion Value -- The value of the convertible security in ...

    Solution Summary

    Calculates conversion ratio, conversion value and straight-debt value of convertible bonds.

    $2.19

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