A convertible bond that promises $10,000 each can be converted into 50 shares of equity at its maturity date. There are 2,000 such bonds and 300,000 shares of equity outstanding.
1. If all bondholders convert, how much of the firm will they own?
2. Suppose the firm value is $100 million at the bond maturity date, will the bondholders convert?
3. What are the biggest determinants of the year-to-year changes in IBM’s market-value and book-value based debt ratios, respectively?