The Olsen Mining Company has been very successful in the last five years. Its $1,000 par...
The Olsen Mining Company has been very successful in the last
five years. Its $1,000 par value convertible bonds have a
conversion ratio of 31. The bonds have a quoted interest rate of 5
percent a year. The firm’s common stock is currently selling for
$41.20 per share. The current bond price has a conversion premium
of $10 over the conversion value.
a. What is the current price of the bond? (Do not round intermediate calculations and round your final answer to 2 decimal places.)
b. What is the current yield on the bond
(annual interest divided by the bond’s market price)? (Do
not round intermediate calculations. Input your
answer as a percent rounded to 2 decimal places.)
c. If the common stock price goes down to $31.00
and the conversion premium goes up to $100, what will be the new
current yield on the bond? (Do not round intermediate
calculations. Input your answer as a percent rounded to 2 decimal
places.)
Homework Answers
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