A convertible bond has the following features: Coupon $6.5 \%$
Maturity date 10 years
Exercise price $\$ 20$
Principal $\$ 1,000$
Call price $\$ 1,065$

Convertible preferred stock
Annual dividend $\$ 2.25$
Convertible into $2.5$ shares of common stock
Call able at $\$ 25$ a share
Currently the common stock is selling for $13; the yield on non‑convertible bonds is 10%, and the yield on comparable preferred stocks is 14%. What is the value of the above securities in terms of the common stock? What would be the value of each security if it lacked the conversion feature?

Question

​A convertible bond has the following features: Coupon $6.5 \%$
Maturity date 10 years
Exercise price $\$ 20$
Principal $\$ 1,000$
Call price $\$ 1,065$

Convertible preferred stock
Annual dividend $\$ 2.25$
Convertible into $2.5$ shares of common stock
Call able at $\$ 25$ a share ​
Currently the common stock is selling for $13; the yield on non‑convertible bonds is 10%, and the yield on comparable preferred stocks is 14%. What is the value of the above securities in terms of the common stock? What would be the value of each security if it lacked the conversion feature?

Quizplus · Accepted Answer

The Answer of ​A convertible bond has the following features: Coupon $6.5 \%$
Maturity date 10 years
Exercise price $\$ 20$
Principal $\$ 1,000$
Call price $\$ 1,065$

Convertible preferred stock
Annual dividend $\$ 2.25$
Convertible into $2.5$ shares of common stock
Call able at $\$ 25$ a share ​
Currently the common stock is selling for $13; the yield on non‑convertible bonds is 10%, and the yield on comparable preferred stocks is 14%. What is the value of the above securities in terms of the common stock? What would be the value of each security if it lacked the conversion feature?

​A Convertible Bond Has the Following Features: Coupon 6.5%6.5 \%6.5% Maturity Date 10 Years Exercise Price

A Convertible Bond Has the Following Features: Coupon $6.5 \%$ Maturity Date 10 Years
Exercise Price