Answer:
A. The bond’s conversion ratio is 28.57
B. The bond’s conversion value is $857.14
C. The bond’s straight debt value is $798.70
D. The minimum price at which Neuman’s bonds should sell is $857.14
Explanation:
A. In order to calculate the bond’s conversion ratio we would have to calculate the following formula:
bond’s conversion ratio=par value/conversion price
According to the given data:
par value=$1,000
Conversion price=$35
Therefore, bond’s conversion ratio=$1,000/$35
bond’s conversion ratio=28.57
B. To calculate the bond’s conversion value we would have to make the following calculation:
bond’s conversion value=bond’s conversion ratio*Stock price
bond’s conversion value=28.57*$30.00
bond’s conversion value=$857.14
C. To calculate the bond’s straight debt value we would have to calculate the following formula:
bond’s straight debt value=PV(0.08,10,50,1,000)
bond’s straight debt value=$798.70
D. The minimum price at which Neuman’s bonds should sell is $857.14
