Share
Explore BrainMass

Convertible bond and rates of return

Laser Electronics Co. has $30 million in 8% convertible bonds outstanding. Conversion rate is 50; the stock price is $17; and the bond matures in 15 years. The bonds are currently selling at a conversion premium of $60 over their conversion value.

If the price of the common stockrises to $23 on this date next yesr, what would your rate of return be if you bought a convertible bond today and sold it in one year? Assume on this date next year, the conversion premium has shrunk from $60 to $10

Solution Preview

Laser Electronics Co. has $30 million in 8% convertible bonds outstanding. Conversion rate is 50; the stock price is $17; and the bond matures in 15 years. The bonds are currently selling at a conversion premium of $60 over their conversion value.

If the price of the common stockrises to $23 on this date next yesr, what would your rate of return be if you bought a convertible bond today and sold it in one year? Assume ...

Solution Summary

The solution calculates the rate of return on investment in convertible bonds.

$2.19