Standard Olive Company of California has a $1,000 par value convertible bond outstanding with a coupon rate of 8 percent and a maturity date of 25 years. It is rated Aa, and competitive, nonconvertible bonds of the same risk class carry a 10 percent yield. The conversion ratio is 25. Currently the common stock is selling for $30 per share on the New York Stock Exchange. a. What is the conversion price? (Round your answer to 2 decimal places.) Conversion price b. What is the conversion value? (Round your answer to 2 decimal places.) Conversion value c. Compute the pure bond value. (Use semiannual analysis.) Use Appendix B and Appendix D as an approximate answer, but calcul your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Bond value d. Calculate the crossover point at which the pure bond value equals conversion value. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Standard Olive Company of California has a $1,000 par value convertible bond outstanding with a coupon rate of 8 percent and a maturity date of 25 years. It is rated Aa, and competitive, nonconvertible bonds of the same risk class carry a 10 percent yield. The conversion ratio is 25. Currently the common stock is selling for $30 per share on the New York Stock Exchange. a. What is the conversion price? (Round your answer to 2 decimal places.) Conversion price b. What is the conversion value? (Round your answer to 2 decimal places.) Conversion value c. Compute the pure bond value. (Use semiannual analysis.) Use Appendix B and Appendix D as an approximate answer, but calcul your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Bond value d. Calculate the crossover point at which the pure bond value equals conversion value. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section: Chapter Questions

Problem 3P

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