The Olsen Mining Company has been very successful in the last five years. Its $1,000 par value convertible bonds have a conversion ratio of 35. The bonds have a quoted interest rate of 8 percent a year. The firm’s common stock is currently selling for $39.60 per share. The current bond price has a conversion premium of $10 over the conversion value.
a. What is the current price of the bond? (Do not round intermediate calculations and round your final answer to 2 decimal places.)
Bond price
b. What is the current yield on the bond (annual interest divided by the bond’s market price)? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
Current yield %
c. If the common stock price goes down to $22.80 and the conversion premium goes up to $100, what will be the new current yield on the bond? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
New current yield %