Conversion ratio and Value
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Lucky dog pet food has a 1,000 convertible bond outstanding with a conversion price of $18.00 per share. The bond pays an interest payment of $50 semiannually and matures in 20 years unless converted into common stock earlier or called by the company. Bonds of similar risk currently yield 12 percent. The common stock sells for $14.70 per share.
A. Calculate the conversion ratio
B. Calculate the conversion value
C. What is pure bond value?
This whole area of convertibles confuse me, please help me solve this problem
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Solution Summary
This solution is comprised of a detailed explanation to calculate the conversion ratio.
Solution Preview
We can calculate the pure bond value of this convertible bond by using the formula as follows: -
where B is the issued price/current price
C is the coupon ...
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