Q5BP Plunkett Gym Equipment Inc. has ... [FREE SOLUTION]

Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen

Business Studies

16th Edition 路 768 pages

ISBN: 9781259277160

Chapter 5: Q5BP (page 624)

Plunkett Gym Equipment Inc. has a $1,000 par value convertible bond outstanding that can be converted into 25 shares of common stock. The common stock is currently selling for $34.75 a share, and the convertible bond is selling for $960.
a. What is the conversion value of the bond?
b. What is the conversion premium?
c. What is the conversion price?

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Answer

$C o n v e r s i o n v a l u e = S t o c k p r i c e 脳 N u m b e r o f S h a r e s = $ 34.75 脳 25 = $ 868.75$

$C o n v e r s i o n p r e m i u m = B o n d p r i c e - C o n v e r s i o n v a l u e = $ 960 - $ 868.75 = $ 91.25$

$C o n v e r s i o n p r i c e = \frac{C o n v e r t i b l e b o n d p a r v a l u e}{N u m b e r o f s h a r e s} = \frac{$ 1, 000}{25} = $ 40$

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