Convertible bond outstanding with coupon rate

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Standard Olive Company of California has a convertible bond outstanding with a coupon rate of 5 percent and a maturity date of 10 years. It is rated Aa, and competitive, nonconvertible bonds of the same risk class carry a 12 percent return. The conversion ratio is 15. Currently the common stock is selling for $25 per share on the New York Stock Exchange.

a. What is the conversion price? (Round your answer to 2 decimal places.)

b. What is the conversion value? (Round your answer to 2 decimal places.)

c. Compute the pure bond value. (Use semiannual analysis.) Use Appendix B and Appendix D as an approximate answer, but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

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 place.

Reference no: EM131933588

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