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Corporate Finance Conversions

1) Find the conversion (or stock) value for each of the $1,000-par-value convertible bonds described in the following table.
Convertible Conversion Ratio Current Market Price of Stock
A 25 $42.25
B 16 $50.00
C 20 $44.00
D 5 $19.50

2) On attachment

3) Carol Krebs is considering buying 100 shares of Sooner Products, Inc.,
at $62 per share. Because she has read that the firm will probably soon receive certain large
orders from abroad, she expects the price of Sooner to increase to $70 per share. As an
alternative, Carol is considering purchase of a call option for 100 shares of Sooner at a
striking price of $60. The 90-day option will cost $600. Ignore any brokerage fees or
dividends.

a. What will Carol's profit be on the stock transaction if its price does rise to $70 and she
sells?
b. How much will Carol earn on the option transaction if the underlying stock price rises to
$70?
c. How high must the stock price rise for Carol to break even on the option transaction?

4) Ed Martin, the pension fund manager for Stark Corporation, is
considering purchase of a put option in anticipation of a price decline in the stock of Carlisle,
Inc. The option to sell 100 shares of Carlisle, Inc., at any time during the next 90 days at a
striking price of $45 can be purchased for $380. The stock of Carlisle is currently selling for
$46 per share.

a. Ignoring any brokerage fees or dividends, what profit or loss will Ed make if he buys the
option and the lowest price of Carlisle stock during the 90 days is $46, $44, $40, and $35?
b. What effect would the fact that the price of Carlisle stock slowly rose from its initial $46
level to $55 at the end of 90 days have on Ed's purchase?

Attachments

Solution Preview

I got number 2 answered for you too :) I finally figured it out

1.
A 25 X $42.25 =1056.25
B 16 X $50.00 = 800
C 20 X $44.00 = 880
D 5 X $19.50 = 97.5

2.
a)
$6,300 / $30/share = 210 shares purchased
210 shares x ($32 - $30) = $420 Gain
$420 / $6,300 = 6.67%

b) $6,300 / $7 per warrant = 900 warrants will be purchased
Profit = [($4 per share × ...

Solution Summary

Corporate finance conversions are examined.

$2.19