2. Bell Canada issued a $1,000 convertible corporate bond. Each bond is convertible to 22 shares of the firm's common stock. a. What price must common stocks have for the investors to consider converting their bond into common stocks? b. If you owned one of these convertible bonds in Bell Canada, would you convert your bond to common stocks if the stock's price reached the conversion price? Explain your answer.

2. Bell Canada issued a $1,000 convertible corporate bond. Each bond is convertible to 22 shares of the firm's common stock. a. What price must common stocks have for the investors to consider converting their bond into common stocks? b. If you owned one of these convertible bonds in Bell Canada, would you convert your bond to common stocks if the stock's price reached the conversion price? Explain your answer.

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter6: Bonds (debt) - Characteristics And Valuation

Section: Chapter Questions

Problem 3PROB

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You bought a convertible bond issued by Zip Corp which has a conversion ratio of 50 common shares for each $1,000 bond. A) At what stock price per share would you make a profit (“in the money”) if you bought the bond at par? B) What would you expect the bond to sell for in the market if Zip Corp’s stock trades at $28.50 per share?
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The bonds of Goniff Bank & Trust have a conversion premium of $34. Their conversion price is $25. The common stock price is $19.50. Assume each bond has a $1,000 par value. What is the price of the convertible bonds? (Do not round intermediate calculations and round your answer to 2 decimal places.) Mc Graw Convertible bond price un Prev 1 of 10 MacBook Air Next >