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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

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