Determining the conversion ratio

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Dylex Corporation, has a $1,000 face value convertible bond issue that is currently selling in the market for $960. Each bond is exchangeable at any time for 25 shares of the company's stock. The convertible bond has a 7 percent coupon, payable semiannually. Similar nonconvertible bonds are priced to yield 9 percent. The bond matures in 10 years. Stock in Dylex Corporation sells for $35 per share.

Note: Please make sure your answers are rounded to 2 decimal places, and that your answer for the conversion premium is in percentage form (For example: 34.56%).

a) What is the conversion ratio? The conversion price? The conversion premium (in percentage form)?

Conversion ratio =

Conversion price =

Conversion premium =

b) What is the straight bond value? The conversion value?

Straight bond value =

Conversion value =

c) In part (b), what would the stock price have to be for the conversion value and the straight bond value to be equal?

Stock price =

d) What is the option value of the bond?

Option value of the bond =

Reference no: EM131402457

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