You have purchased a convertible bond for 109376 It is conve

You have purchased a convertible bond for $1,093.76. It is convertible into 58 shares of the firm’s common stock. The current stock price is $15.60 per share.

a. What is the market conversion value of the bond? (Round your answer to 2 decimal places.)

Market conversion value            

$

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

Conversion premium            

$

c. Will you choose to convert the stock now?

Solution

a. Conversion value = No.of shares into which converted * Price per share
=58*15.60=904.8

b. Conversion premium = Current value of bond - Market conversion value
=1093.76-904.8=188.96

C. No
Since the conversion value is less than the bond price,it is not advisable to convert now