Question 24.S-TP.2: Convertible Bonds Old Cycle Corporation (OCC), publisher of ...
Convertible Bonds Old Cycle Corporation (OCC), publisher of Ancient Iron magazine, has a $1,000 par value convertible bond issue that is currently selling in the market for $950. Each bond can be exchanged for 100 shares of stock at the holder’s option.
The bond has a 7 percent coupon, payable annually, and it will mature in 10 years. OCC’s debt is BBB-rated. Debt with this rating is priced to yield 12 percent. Stock in OCC is trading at $7 per share.
What is the conversion ratio on this bond? The conversion price? The conversion premium? What is the floor value of the bond? What is its option value?
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