What is the expected market price of the convertible

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Reference no: EM13267214

A convertible bond has the following features:

Face Value: $1,000

Maturity: 20 years

Annual coupon: $80

Conversion Price: $80

Market Price of the Convertible Bond: $800

a) The bond may be converted into how many shares?

b) What is the current value of the convertible as a bond if prevailing interest rates are 11%?

c) What is the current value of the convertible as a stock if the current stock price is $60 per share?

d) Based on (b) and (c), what is the premium reflected in the Market Price?

e) If the stock price increases to $73 per share and the premium stays the same, what is the expected Market Price of the convertible?

Reference no: EM13267214

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