Describe conversion of convertible bonds

Reference no: EM1313316

Describe Conversion of convertible bonds into stock with various stock prices.

Aramis Inc. sold $500 million of convertible bonds in March 2000. The bonds had a 20-year maturity, a 5.00% coupon rate, and were sold at their $1,000 par value. The conversion price was set at $50.00 against a current price of $42 per share of common. Assume straight non-convertible debentures of the same quality yielded about 7.50% at the time.

1. At what stock price, the conversion makes financial sense for the holder of the convertible bond?

2. What is the impact of conversion on the stock price?

Reference no: EM1313316

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