Pittsburgh steel company has a convertible bond outstanding, Finance Basics

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Pittsburgh steel company has a convertible bond outstanding

Question: Pittsburgh Steel Company has a convertible bond outstanding, trading in the marketplace at $930. The par value is $1,000, the coupon rate is 8 percent, and the bond matures in 25 years. The conversion price is $50 and the company's common stock is selling for $44 per share. Interest is paid semiannually.

a. What is the conversion value?

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)

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