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    Standard Olive: Convertible Bond Calculations

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    Standard Olive Co. has a convertible bond outstanding with a coupon rate of 9 percent and a maturity date of 15 years. Comparable nonconvertible bonds of the same risk class carry a 10 percent return. The conversion ratio is 25. Presently the common stock is selling for $30 per share.

    a. What is the current price of the bond?
    b. What is the conversion value?
    c. Compute the pure bond value using semiannual interest payments.
    d. Which will influence the bond price more - the pure bond value or the conversion value.

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    Solution Preview

    a. What is the current price of the bond?
    For the bond, FV = 1000
    coupon payment = 9% * 1000 = 90
    number of years = 15
    returnn rate = 10%
    By a financial calculator, we compute Price = PV = $923.94

    b. What is the conversion value?
    conversion value is the value of a ...

    Solution Summary

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