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The following data apply to Saunders Corporation’s convertible bonds.
Maturity in years: 10 Current stock price: $30.00
Par value: $1,000.00 Conversion price: $35.00
Annual coupon: 5.00% Straight-debt yield: 8.00%
a. What is the bond’s conversion ratio?
b. What is the bond’s conversion value?
c. What is the bond’s straight-debt value?
d. Based on your answers to the three preceding questions, what is the minimum price (or “floor” price) at which the Saunders’ bonds should sell?
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