Calculate the conversion ratio of the convertible

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Question 1: Information on a convertible bond follows:

Par or face value RM1,000

Coupon rate RM7%

Maturity date 10 years

Conversion Price RM50.00

Price of convertible 95% of face value

Price of the issuer's non-convertible RM800.00

Price of issuer's common stock RM45.00

a. Calculate the conversion ratio of the convertible.

b. Calculate the conversion value of the convertible.

c. What is the stock price at which the conversion value is equal to the straight bond value?

d. Find the premium the holder is paying for the option to buy one share of the common stock.

e. Find the amount the price of the common stock has to appreciate by the bond's maturity date to justify conversion if the holder has the option not to convert.

Reference no: EM132801862

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