Standard Olive Company of California has a $1,000 par value convertible bond outstanding with a coupon rate of 8 percent and a maturity date of 25 years. It is rated Aa, and competitive, nonconvertible bonds of the same risk class carry a 10 percent yield. The conversion ratio is 25. Currently the common stock is selling for $30 per share on the New York Stock Exchange. a. What is the conversion price? (Round your answer to 2 decimal places.) Conversion price b. What is the conversion value? (Round your answer to 2 decimal places.) Conversion value c. Compute the pure bond value. (Use semiannual analysis.) Use Appendix B and Appendix D as an approximate answer, but calcul your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Bond value 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 places.)
Standard Olive Company of California has a $1,000 par value convertible bond outstanding with a coupon rate of 8 percent and a maturity date of 25 years. It is rated Aa, and competitive, nonconvertible bonds of the same risk class carry a 10 percent yield. The conversion ratio is 25. Currently the common stock is selling for $30 per share on the New York Stock Exchange. a. What is the conversion price? (Round your answer to 2 decimal places.) Conversion price b. What is the conversion value? (Round your answer to 2 decimal places.) Conversion value c. Compute the pure bond value. (Use semiannual analysis.) Use Appendix B and Appendix D as an approximate answer, but calcul your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Bond value 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 places.)
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:Standard Olive Company of California has a $1,000 par value convertible bond outstanding with a coupon rate of 8 percent and a
maturity date of 25 years. It is rated Aa, and competitive, nonconvertible bonds of the same risk class carry a 10 percent yield. The
conversion ratio is 25. Currently the common stock is selling for $30 per share on the New York Stock Exchange.
a. What is the conversion price? (Round your answer to 2 decimal places.)
Conversion price
b. What is the conversion value? (Round your answer to 2 decimal places.)
Conversion value
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.)
Bond value
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 places.)
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