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Problem - Calculate current yield, conversion ratio, conversion price, and yield to maturity. A 6 percent convertible bond (maturing in 20 years) is convertible into 25 shares of the company's common stock. The bond has a par value of $1,000 and is currently trading at $800; the stock (which pays a dividend of 95 cents a share) is currently trading in the market at $35 a share. Use this information to answer the following questions:
a. What is the current yield on the convertible bond? What is the dividend yield on the company's common stock? Which provides more current income: the convertible bond or the common stock? Explain.
b. What is the bond's conversion ratio? Its conversion price?
c. What is the conversion value of this issue? Is there any conversion premium in this issue? If so, how much?
d. What is the (approximate) yield to maturity on the convertible bond?
Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..
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