Problem 18-20 Convertible Bonds (LO3, CFA5) Steven Long, a bond analyst, is anal

Question

Problem 18-20 Convertible Bonds (LO3, CFA5) Steven Long, a bond analyst, is analyzing a convertible bond. The characteristics of the bond are given below. Convertible Bond Characteristics Par value Annual coupon rate (annual pay) Conversion ratio Market price Straight value $1,000 8.4% 28 123% of par 99% of par Underlying Stock Characteristics Current market price $ 38 per share Compute the bond's conversion value and conversion price. (Round your conversion price to 2 decimal places.) Conversion value Conversion price

Explanation / Answer

conversion value = Market price * Conversion ratio

conversion value = 38 * 28 = 1064.00

Conversion price = Par value / Conversion ratio

Conversion price = 1000 / 28 = 35.71

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