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Describe Conversion of convertible bonds into stock with various stock prices.

Aramis Inc. sold $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 $1,000 par value. The conversion price was set at $50.00 against a current price of $42 per share of common. Assume straight non-convertible debentures of the same quality yielded about 7.50% at the time.

1. At what stock price, the conversion makes financial sense for the holder of the convertible bond?

2. What is the impact of conversion on the stock price?

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M9163693

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