Chap 14) Similar to the example in class, assume that a firm has 450,000 shares of common stock outstanding and 15,000 convertible t with a face of $1,000. Each convertible bond can convert into 50 shares of common stock. Assume that the firm value at the maturity dat convertible bond is $25,000,000. Based on this firm value, will the convertible bondholders be better off converting into common stock or converting (and therefore receiving just the face amount of $1,000 per bond)? (As in class, assume the firm does not have any other deb the convertible bond and the amount owning to the convertible bondholders at the maturity date is the face amount of $1,000 per bond.) O The convertible bondholders will be better off converting into common stock. O The convertible bondholders will be better off not converting into common stock and just receiving the $1,000 face.
Chap 14) Similar to the example in class, assume that a firm has 450,000 shares of common stock outstanding and 15,000 convertible t with a face of $1,000. Each convertible bond can convert into 50 shares of common stock. Assume that the firm value at the maturity dat convertible bond is $25,000,000. Based on this firm value, will the convertible bondholders be better off converting into common stock or converting (and therefore receiving just the face amount of $1,000 per bond)? (As in class, assume the firm does not have any other deb the convertible bond and the amount owning to the convertible bondholders at the maturity date is the face amount of $1,000 per bond.) O The convertible bondholders will be better off converting into common stock. O The convertible bondholders will be better off not converting into common stock and just receiving the $1,000 face.
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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Transcribed Image Text:(Chap 14) Similar to the example in class, assume that a firm has 450,000 shares of common stock outstanding and 15,000 convertible bonds, each
with a face of $1,000. Each convertible bond can convert into 50 shares of common stock. Assume that the firm value at the maturity date of the
convertible bond is $25,000,000. Based on this firm value, will the convertible bondholders be better off converting into common stock or not
converting (and therefore receiving just the face amount of $1,000 per bond)? (As in class, assume the firm does not have any other debt other than
the convertible bond and the amount owning to the convertible bondholders at the maturity date is the face amount of $1,000 per bond.)
O The convertible bondholders will be better off converting into common stock.
O The convertible bondholders will be better off not converting into common stock and just receiving the $1,000 face.
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