Company A issues a convertible bond with a 3.5% coupon rate and a $1,000 face value with a conversion ratio of 25. (Meaning it can be converted into 25 shares of stock) The company’s stock is currently selling for $26 per share
A. At what price point does converting the bond become attractive to an investor?
B. Will they convert as soon as the share price reaches this level? Explain?
a) Price for conversion should at least be equal to 1000 / 25 = $40
b) Probably no. Because holding the bond is yielding investors 3.5% or $35 each year, while at that price, they are only getting their principal back.
Company A issues a convertible bond with a 3.5% coupon rate and a $1,000 face value...
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Suppose a two percent coupon, $1,000 face value10-year bond is convertible any time before it matures into 100 shares of stock. The stock that it may be converted into is currently selling for $12. What is the lowest price this bond could be selling for right now?
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