Ryan Home Products, Inc., issued $430,000 of 8-percent convertible bonds. Each bond is convertible into 28 shares of common stock any time before maturity.
a) Suppose the current price of the bonds is $1000 and the current price of Ryan common stock is $31.25.
(i) What is the conversion ratio and the conversion price?
(ii) What is the conversion premium?
b) What is the current conversion value of the bonds?
c) What will be the conversion value if the value of Ryan common stock increases by $2?