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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Solution Summary
Calculates conversion ratio, conversion value and straight-debt value of 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
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 ...
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