Sherwood Forest Products has a convertible bond quoted on the NYSE bond market a

Question

Sherwood Forest Products has a convertible bond quoted on the NYSE bond market at 90. (Bond quotes represent the percentage of par value. Thus, 70 represents $700, 80 represents $800, and so on.) It matures in 10 years and carries a coupon rate of 6.00 percent. The conversion ratio is 30, and the common stock is currently selling for $25 per share on the NYSE.

a. Compute the conversion premium. $

b. At what price does the common stock need to sell for the conversion value to be equal to the current bond price? Stock price = $

Explanation / Answer

Conversion Premium = Bond Price - (Stock Price

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