A convertible bond is selling for €800.It has 10 years to maturity,a €1,000 face value,and a 10% coupon.Similar nonconvertible bonds are priced to yield 14%.The conversion price is €50 per share.The equity currently sells for €31.375 per share.The conversion premium is:

Question

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The conversion premium is calculated as [(Conversion Value - Bond Price) / Bond Price] * 100. The conversion value is (Face Value / Conversion Price) * Current Share Price = (€1,000 / €50) * €31.375 = €627.50. The conversion premium is [(€627.50 - €800) / €800] * 100 = -21.56%. However, since the bond price is higher than the conversion value, the premium is calculated as [(Bond Price - Conversion Value) / Conversion Value] * 100 = [(€800 - €627.50) / €627.50] * 100 = 27.47%. None of the given options match this calculation, so the correct choice is E) None of the above.

A Convertible Bond Is Selling for €800