Vernon Glass Company has $30 million in 10 percent, $1,000 par value convertible bonds outstanding. The conversion ratio is 40, the stock price is $18, and the bond matures in 25 years. The bonds are currently selling at a conversion premium of $45 over their conversion value. If the price of the common stock rises to $24 on this date next year, what would your rate of return be if you bought a convertible bond today and sold it in one year? Assume on this date next year, the conversion premium has shrunk from $45 to $20. (Hint: Calculate rate of return as (Future bond price - Current bond price + Interest earnings) / Current bond price)) (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Rate of return %

Vernon Glass Company has $30 million in 10 percent, $1,000 par value convertible bonds outstanding. The conversion ratio is 40, the stock price is $18, and the bond matures in 25 years. The bonds are currently selling at a conversion premium of $45 over their conversion value. If the price of the common stock rises to $24 on this date next year, what would your rate of return be if you bought a convertible bond today and sold it in one year? Assume on this date next year, the conversion premium has shrunk from $45 to $20. (Hint: Calculate rate of return as (Future bond price - Current bond price + Interest earnings) / Current bond price)) (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Rate of return %

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section: Chapter Questions

Problem 14P

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