Calculate the convertible issues conversion ratio

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Reference no: EM13814063

An investment company recently issued convertible bonds with a $1,000 par value. The bonds have a conversion price of $25 a share. At the time of issue, the company's underlying stock price is $20.

a. Calculate the convertible issue's conversion ratio?

b. After issuance, will the bond likely increase, decrease, or not change in value if the underlying stock price changes to $23 per share and everything else remains constant? Why?

c. The bondholder converts the bond to common stock when the price of the underlying stock reaches $35. What is the total market value of the new shares?

d. How does the company's balance sheet change at the point the bondholders convert their bonds to common stock? Explain?

e. What are 3 advantages to the investor in buying convertible bonds instead of the stock itself?

Reference no: EM13814063

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