Plunkett Gym Equipment Inc. has a $1,000 par value convertible bond outstanding
ID: 2802774 • Letter: P
Question
Plunkett Gym Equipment Inc. has a $1,000 par value convertible bond outstanding that can be converted into 60 shares of common stock. The common stock is currently selling for $28.60 a share, and the convertible bond is selling for $1,772.00.
a. What is the conversion value of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places.)
b. What is the conversion premium? (Do not round intermediate calculations and round your answer to 2 decimal places.)
c. What is the conversion price? (Do not round intermediate calculations and round your answer to 2 decimal places.)
Explanation / Answer
a. What is the conversion value of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places.)
Conversion value =Stock value of the convertible bond
= stock price (common stock is currently selling for $28.60 a share) x conversion ratio (outstanding 60 shares of common stock) = stock price*conversion ratio
Conversion value $28.60 x 60= $1716.00
b. What is the conversion premium? (Do not round intermediate calculations and round your answer to 2 decimal places.)
Conversion premium = (convertible price – conversion value)
= convertible bond price (the convertible bond is selling for $1,772.00.) – conversion value ($1716.00)
= $1772.00-$1716.00=$56.00
c. What is the conversion price? (Do not round intermediate calculations and round your answer to 2 decimal places.)
conversion price= Par value/ Convertion rati
=Plunkett Gym Equipment Inc. has a $1,000 par value convertible bond outstanding that can be converted into 60 shares of common stock.
Conversion price= $1000/60=$16.67