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A 3% callable and convertible corporate bond with a face value of $1,000 and 20 years...

A 3% callable and convertible corporate bond with a face value of $1,000 and 20 years remaining to maturity trades to yield 0.5%. Its conversion ratio is 40. The market value of bond is equal to 104% of the conversion value. The issuer just announced the bond would be called at 110 and simultaneously the market value of the underlying stock increased by 3%. Find the new market value of the bond following the announcement and express it in dollars and cents. If the bond had a call price of 150%, what would its market value be then?

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Expert Solution

Face value $                                                                        1,000
Conversion ratio 40%
Market value of bond 104% of the conversion price
Bond would be called $                                                                        1,100
Market value of Stock =110/104% $                                                                        1,058
Stock price increase 3%
New Market value of the stock 1,089.42
New Market value of the Bond $                                                                  1,133.00
New Market value of the Bond $ 1133 and 0 cents
If the bond had a call price of 150% then the following is the Maket value
Face value $                                                                        1,000
Conversion ratio 40%
Market value of bond 104% of the conversion price
Bond would be called $                                                                        1,500
Market value of Stock =110/104% $                                                                        1,442
Stock price increase 3%
New Market value of the stock 1,485.58
New Market value of the Bond $                                                                  1,545.00
New Market value of the Bond $1,545
New Market value of the Bond $ 1545 and 0 cents

ekkarill92 answered 1 year ago
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