Lucky Dog Pet Food has a $1,000 convertible bond outstanding with a conversion price of $12.00 per share. The bond pays an interest payment of $40 semiannually and matures in 20 years unless converted into common stock earlier or called by the company. The common stock currently sells for $11.25 per share. If the bond sold at its theoretical bond value, it would be priced competitively to yield 10% with bonds of the same risk class.
a) How many shares of stock are received on conversion?
b) What is the conversion value?
c) What is the pure bond value?
d) How much downside protection has the pure bond value provided to investors? (Provide the answer in dollars.)

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The Answer of Lucky Dog Pet Food has a $1,000 convertible bond outstanding with a conversion price of $12.00 per share. The bond pays an interest payment of $40 semiannually and matures in 20 years unless converted into common stock earlier or called by the company. The common stock currently sells for $11.25 per share. If the bond sold at its theoretical bond value, it would be priced competitively to yield 10% with bonds of the same risk class.
a) How many shares of stock are received on conversion?
b) What is the conversion value?
c) What is the pure bond value?
d) How much downside protection has the pure bond value provided to investors? (Provide the answer in dollars.)

Lucky Dog Pet Food Has a $1,000 Convertible Bond Outstanding