Craig's Cake Company has an outstanding issue of 13-year convertible bonds with a $800 par value. These bonds are convertible into 70 shares of common stock. They have a 12% annual coupon interest rate, whereas the interest rate on straight bonds of similar risk is 16%. a. Calculate the straight bond value of this bond. b. Calculate the conversion (or stock) value of the bond when the market price is $23 per share of common stock. c. What is the minimum market value of the bond?
Craig's Cake Company has an outstanding issue of 13-year convertible bonds with a $800 par value. These bonds are convertible into 70 shares of common stock. They have a 12% annual coupon interest rate, whereas the interest rate on straight bonds of similar risk is 16%. a. Calculate the straight bond value of this bond. b. Calculate the conversion (or stock) value of the bond when the market price is $23 per share of common stock. c. What is the minimum market value of the bond?
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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Craig's Cake Company has an outstanding issue of 13-year convertible bonds with a $800 par value. These bonds are convertible into 70 shares of common stock. They have a 12% annual coupon interest rate, whereas the interest rate on straight bonds of similar risk is 16%.
a. Calculate the straight bond value of this bond.
b. Calculate the conversion (or stock) value of the bond when the market price is $23 per share of common stock.
c. What is the minimum market value of the bond?
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