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problem: Aramis Inc. sold USD 500 million of convertible bonds in March 2000. The bonds had a 20-year maturity, a 5.00% coupon rate, and were sold at their USD 1,000 par value. The conversion price was set at USD 50.00 against a current price of USD 42 per share of common. Assume straight non-convertible debentures of the same quality yielded about 7.50 percent at the time.

[A] At what stock price, the conversion makes financial sense for the holder of the convertible bond?

[B] Estimate the impact of conversion on the stock price?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M918315

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