Suresh Singh, CFA, is analyzing a convertible bond. The characteristics of the bond and
the underlying common stock are given in the following exhibit:
Convertible Bond Characteristics
Par value | $1,000 |
Annual coupon rate (annual pay) | 6,5% |
Conversion ratio | 22 |
Market price | 105% of par value |
Straight value | 99% of par value |
Underlying Stock Characteristics
Current market price | $40 per share |
Annual cash dividend | $120 per share |
Compute the bond’s
a. Conversion value.
b. Market conversion price.
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