Maple Aircraft has issued a convertible subordinated debenture at 5.25% interest due 2020. The conversion price is $67.00 and the debenutre is callable at 103.25% of face value. The market price of the convertible is 88.50% of face value, and the price of the common is $61.50. Assume that the value of the bond in the absence of a conversion feature is about 62.50% of face value. Assume a face value of $1,000.
a. What is conversion ratio of the debenture? (Round your answer to 2 decimals places.) Conversion ration = _____________________
b. If the conversion ratio were 47.50, what would be the conversion price? (Round your answer to 2 decimal places.) Conversion price = $_______________________
For the remaining questions, assume the conversion price is $67.00 as state in the orignal problem.
c. What is the conversion value as a percent of face value? (Do not round intermediate calculations. Enter your answer as a percent rounded to 3 decimal places.) Conversion value = __________________%
d. At what stock price is the conversion value equal to the bond value? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Stock price = $_________
e. Can the market price be less than the conversion vlaue? Yes_____ No ______
f. How much is the convertible holder paying for the option to buy one share of common stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Option value = $_______
g. By how much does the common have to rise by 2020 to justify conversion? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) When the price of the bond reaches ___________% of face value.