Value of the convertible bond-conversion premium


Question 1: A convertible bond has an 7% annual coupon and 10 years to maturity. The face value is $1,000 and the conversion ratio is 35. The stock currently sells for $27.375 per share. Similar nonconvertible bonds are priced to yield 9%. The value of the convertible bond is at least:

Question 2: 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 stock currently sells for $31.375 per share. The conversion premium is:

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Finance Basics: Value of the convertible bond-conversion premium
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