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Question: Sherwood Forest Products has a convertible bond quoted on the NYSE bond market at 95. (Bond quotes represent percentage of par value. Thus, 70 represents $700, 80 represents $800, and so on.) It matures in 10 years and carries a coupon rate of 6½ percent. The conversion ratio is 25, and the common stock is currently selling for $35 per share on the NYSE.

a. Compute the conversion premium.

b. At what price does the common stock need to sell for the conversion value to be equal to the current bond price?

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M92601200

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