A $1,000 face value bond has a conversion ratio of 40. You estimate the transaction costs of conversion to be 2.8% of the face value of the bond. What price must the stock reach in order for you to convert?

A $1,000 face value bond has a conversion ratio of 40. You estimate the transaction costs of conversion to be 2.8% of the face value of the bond. What price must the stock reach in order for you to convert?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 4MC

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Question

$1,000

face value bond has a conversion ratio of

40.

You estimate the transaction costs of conversion to be

2.8%

of the face value of the bond. What price must the stock reach in order for you to convert?

Definition Definition Calculates the present value of a bond's expected future periodic coupon payments. Bond valuation determines the theoretical fair value of a particular bond and helps investors estimate what rate of return they could expect. The bond's theoretical fair value is computed by discounting the future cash flows or coupon payments by an applicable discount rate.

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