Reynolds Technology has a convertible bond outstanding, trading in the marketplace at $940. The par value is $1,000, the coupon rate is 8 percent, and the bond matures in 15 years. The conversion ratio is 20, and the company’s common stock is selling for $48 per share. Interest is paid semiannually.
a. What is the conversion value? (Do not round intermediate calculations and round your answer to 2 decimal places.)
b. If similar bonds, which are not convertible, are currently yielding 10 percent, what is the pure bond value of this convertible bond? (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.