Dylex Corporation, has a $1,000 face value convertible bond issue that is currently selling in the market for $960. Each bond is exchangeable at any time for 25 shares of the company's stock. The convertible bond has a 7 percent coupon, payable semiannually. Similar nonconvertible bonds are priced to yield 9 percent. The bond matures in 10 years. Stock in Dylex Corporation sells for $35 per share.
Note: Please make sure your answers are rounded to 2 decimal places, and that your answer for the conversion premium is in percentage form (For example: 34.56%).
a) What is the conversion ratio? The conversion price? The conversion premium (in percentage form)?
Conversion ratio =
Conversion price =
Conversion premium =
b) What is the straight bond value? The conversion value?
Straight bond value =
Conversion value =
c) In part (b), what would the stock price have to be for the conversion value and the straight bond value to be equal?
Stock price =
d) What is the option value of the bond?
Option value of the bond =