Question

ONLY ANSWER E,F,G

2. Consider the convertible bond by Miser Electronics: par value1, 000 market price of convertible bond- $900 estimated straight value of bond $700 . coupon rate-8.5% . conversion ratio30 Assume that the price of Miser Electronics common stock is $25 and that the dividend per share is $1 per annum Calculate each of the following a. conversion valie b. market conversion price C. conversion premium per share d. conversion premium ratio e. premium over straight value f. yield advantage of bond g premium payback period

Answer 1

Solution=

a) Conversion value= Market price per share* no of shares

=$25*30 shares=$750

b)Market conversion price= Market priceof the bond / no of shares

=$900/30 shares

=$30

c)Conversion premium per share =(market price of the bond - conversion value)/no of shares

=(900-750)/30 shares

=$5 per share

e) Premiumover straight value={($750-$700)/$750}*100

=7.14%

f) income from bond=8.5%*1000=$85

Dividend from equity shares=$1 per share

Total no of share=25

Then dividdend =$25

Yield advantage of the bond=$85-$25=$60

g) premium pay back period = (bond Price- cinversion value)/ Yield advange of the bond

( 900-750)/60 =2.5 yera