a)What is the conversion value of this bond if it is selling at $970. b)What is its pure bond value? c)What is its conversion premium?

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter20: Financing With Derivatives
Section: Chapter Questions
Problem 17P
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Flika Company has an issue of convertible bonds with a $1,000 par value. The bonds have a 10 percent coupon rate, have a 10-year maturity, and are convertible into 100 shares of common stock. The yield to maturity on bonds of similar risk is 11 percent and the market price of the firm's common stock is currently $9.00. Based on this information,

  1. a)What is the conversion value of this bond if it is selling at $970.
  2. b)What is its pure bond value?
  3. c)What is its conversion premium?
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