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Consider the following hypothetical convertible bond:
Par Value = $1,000
Coupon Rate = 9.5%
Market Price of convertible bond = $1,000
Conversion ratio = 37.383
Estimated straight value of bond = $510
Yield to maturity of the straight bond = 18.7%
Assume that the price of the common stock is $23 and that the dividend per share is $0.75 per year.
Calculate each of the following:
Conversion value
Market conversion price
Conversion premium per share
Conversion premium ratio
Premium over straight value
Premium payback period
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