Consider the convertible bond by ABC Company:
Par value = $1,000
Coupon rate = 8.5%
Market price of convertible bond = $900
Conversion ratio = 30
Estimated straight value of bond = $700
Assume that the price of ABC Company’s common stock is $25 and that the dividend per share is $1 per annum
Calculate each of the following:
a) Conversion value
b) Market conversion price
c) Conversion premium per share
d) Conversion premium ratio
e) Premium over straight value
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