Question: 1. Water Emporium issues $20 million of 4% convertible bonds that mature in 10 years. Each $1,000 bond is convertible into 20 shares of common stock. The current market price of Water Emporium stock is $40 per share.
1. Explain why Water Emporium might choose to issue convertible bonds.
2. Explain why investors might choose Water Emporium's convertible bonds.
3. Ultimate Butter Popcorn issues 6%, 20-year bonds with a face amount of $50,000. The market interest rate for bonds of similar risk and maturity is 6%. Interest is paid semiannually. At what price will the bonds issue?