The XLarge Corporation has a convertible bond outstanding with a conversion price of $28 per share.The $1,000 par value bonds have a 5% coupon rate and 20 years to maturity.The firm's common stock is currently selling for $36 per share and the bonds are selling for $1,300.00.
A)Calculate the conversion ratio
B)Calculate the conversion value.
C)If equivalent bonds are currently yielding 12% to maturity,what is the pure bond value of this bond?
D)How much downside protection does the pure bond value provide to an investor? Would this be an appropriate investment for a risk-averse investor?
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B)
C)Pure bond value (with semi-a...
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