Calculate the conversion premium of the convertible bond

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Reference no: EM132057744

Please explain the "Balance Sheet" of an American based publicly traded company, Make sure and include a discussion on all 3 major parts of the balance sheet example you choose. Copy and paste such balance sheet from a 10K or 10Q

BYD has a 7% convertible bond due 20 years from now. The convertible bond has a par value of $1,000 and is selling at $870. The conversion price of the bond is $40 per share. A non-convertible coupon bond of similar quality is currently yielding 9%. The common stock of BYD is selling at $32 per share. Assume that bond interest payments are made annually.

i Determine the conversion ratio of the convertible bond.

ii Calculate the conversion premium of the convertible bond.

iii Access the minimum price at which the convertible bond should sell.

iv Explain why a convertible bond sells at a premium above its value as a bond or common stock.

Reference no: EM132057744

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