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Saunders Corporation's Convertible Bonds

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

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