Why does the conversion premium has shrunk

Reference no: EM131792582

Question: Vernon Glass Company has $20 million in 10 percent convertible bonds outstanding. The conversion ratio is 50, the stock price is $19, and the bond matures in 10 years. The bonds are currently selling at a conversion premium of $70 over their conversion value. If the price of the common stock rises to $25 on this date next year, what would your rate of return be if you bought a convertible bond today and sold it in one year? Assume on this date next year, the conversion premium has shrunk from $70 to $15.

Reference no: EM131792582

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