Reynolds Technology has a convertible bond outstanding, trading in the marketplace at $910. The par value is $1,000, the coupon rate is 9 percent, and the bond matures in 25 years. The conversion ratio is 25, and the company’s common stock is selling for $34 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.)
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.) 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