The conversion value exceeds the call price

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Central Food Brokers is considering issuing a 20-year convertible bond that will be priced at its par value of $1,000 per bond. The bonds have a 12 percent annual coupon interest rate, and each bond could be converted into 30 shares of common stock. The stock currently sells at $20 per share, has an expected annual dividend of $3.00, and is growing at a constant 5 percent per year. The bonds are callable after 10 years at a price of $1,050, with the price declining by $5 per year thereafter. If, after 10 years, the conversion value exceeds the call price by at least 20 percent, management will call the bonds. What is the conversion price?

Reference no: EM13939376

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