The XLarge Corporation has a convertible bond outstanding with a conversion ratio of 20. The common stock is selling for $48.00. The convertible bond is selling for $1,160.00.
a) What is the conversion value? __________
b) What is the conversion premium? ________
c) What is the conversion price? ____________
d) If the common stock falls to $45, and the pure bond price is $890, will the bond sell for greater than its conversion value?
e) Why do firms offer convertible bonds? (discuss)