A(n) 99?% convertible bond carries a par value of? $1,000 and a conversion ratio of 21....

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A(n) 99?% convertible bond carries a par value of? $1,000 and aconversion ratio of 21. Assume that an investor has? $5,000 toinvest and that the convertible sells at a price of ?$1,000 ?(whichincludes a 26?% conversion? premium). How much total income?(coupon plus capital? gains) will this investment offer? if, overthe course of the next 12? months, the price of the stock moves to?$87.58 per share and the convertible trades at a price thatincludes a conversion premium of 11%? What is the holding periodreturn on this? investment? Finally, given the information in the?problem, determine what the underlying common stock is currentlyselling for.

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3.9 Ratings (790 Votes)

The coupon rate is wrongly given at 99 It should be 99 I have solved question by taking 99 as the coupon rate Part 1 The value of total income is arrived as below Conversion Value Price of Stock After 1 YearConversion Ratio See Answer

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A(n) 99?% convertible bond carries a par value of? $1,000 and aconversion ratio of 21. Assume that an investor has? $5,000 toinvest and that the convertible sells at a price of ?$1,000 ?(whichincludes a 26?% conversion? premium). How much total income?(coupon plus capital? gains) will this investment offer? if, overthe course of the next 12? months, the price of the stock moves to?$87.58 per share and the convertible trades at a price thatincludes a conversion premium of 11%? What is the holding periodreturn on this? investment? Finally, given the information in the?problem, determine what the underlying common stock is currentlyselling for.