The XLarge Corporation has a convertible bond outstanding with a conversion price of $35 per share. The $1,000 par value bonds have a 6% annual coupon rate, paid semi-annually, and 20 years to maturity. The firm's common stock is currently selling for $44 per share and the convertible bonds are selling for $1,200.00.
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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The Answer of The XLarge Corporation has a convertible bond outstanding with a conversion price of $35 per share. The $1,000 par value bonds have a 6% annual coupon rate, paid semi-annually, and 20 years to maturity. The firm's common stock is currently selling for $44 per share and the convertible bonds are selling for $1,200.00.
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?

The XLarge Corporation Has a Convertible Bond Outstanding with a Conversion