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A convertible bond is selling for $800. It has 10 years to maturity, a $1000 face value, and a 10% coupon. Similar nonconvertible bonds are priced to yield 14%. The conversion price is $50 per share. The stock currently sells for $31.375 per share. The conversion premium is:


A) 37.25%.
B) 43.33%.
C) 59.36%.
D) 66.67%.

E) A) and B)
F) A) and C)

Correct Answer

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What is the conversion price?


A) 35
B) 770
C) 28.57
D) 1000

E) C) and D)
F) A) and B)

Correct Answer

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A convertible bond has an 7% coupon and 10 years to maturity. The face value is $1000 and the conversion ratio is 35. The stock currently sells for $27 3/8 per share. Similar nonconvertible bonds are priced to yield 9%. The value of the convertible bond is at least:


A) $869.92.
B) $958.125.
C) $1,000.00.
D) $1,325.20.

E) C) and D)
F) None of the above

Correct Answer

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