FV 1000

Coup 60
Maturity 20
Call price 1040
Price of stock 30
Exercise price 25

A If interest rate, r 9%

Current price $726.14

B No. of shares = Face Value / Stock Price

No. of shares 40

So, Conversion factor = 40

C Value of bonds in terms of stock = No. of stock * Price of stock

Value of bond = 1200

D Minimum price that the bond will command will be maximum of value of equity

So, in this case, Value of convertible bond = 1200

E The firm might call back the bonds if market interest rates have dropped, or it ca

F If they do not convert the bond, they get $1040

G If they convert, they would get $1200, so it is advantageous to convert the bond
ice of stock

maximum of value of equity or value of straight bond

st rates have dropped, or it ca n refinance its debt at a lower cost

ntageous to convert the bonds if called