A company has debentures outstanding (par value = $1,000) that are convertible into common stock at a price of $92.5 per share. The convertible bonds have a coupon interest rate of 6.125%, pay coupons annually, and will be matured in 25 years.
What is the conversion value of the bonds if the company's common stock is selling for $75.49 per share?
What is the straight-bond value, assuming that straight debt of equivalent risk and maturity is yielding 8%?
What is the value of convertible option if the market value of the bonds is $925?