Maple Aircraft has issued a 4¾% convertible subordinated debenture due 3 years from now. The conversion price is $47 and the debenture is callable at 102.75% of face value. The market price of the convertible is 91% of face value, and the price of the common is $41.50. Assume that the value of the bond in the absence of a conversion feature is about 65% of face value. 6. Can the market price be less than the conversion value? 7. How much is the convertible holder paying for the option to buy one share of common stock? 8. By how much does the common have to rise after three years to justify conversion? please explain in full detail
Maple Aircraft has issued a 4¾% convertible subordinated debenture due 3 years from now. The conversion price is $47 and the debenture is callable at 102.75% of face value. The market price of the convertible is 91% of face value, and the price of the common is $41.50. Assume that the value of the bond in the absence of a conversion feature is about 65% of face value. 6. Can the market price be less than the conversion value? 7. How much is the convertible holder paying for the option to buy one share of common stock? 8. By how much does the common have to rise after three years to justify conversion? please explain in full detail
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Maple Aircraft has issued a 4¾% convertible subordinated debenture due 3 years from now. The conversion price is $47 and the debenture is callable at 102.75% of face value. The market price of the convertible is 91% of face value, and the price of the common is $41.50. Assume that the
6. Can the market price be less than the conversion value?
7. How much is the convertible holder paying for the option to buy one share of common stock?
8. By how much does the common have to rise after three years to justify conversion? please explain in full detail. Thank you.
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