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Problem Set 7

# Problem Set 7 - BusM 401 Problem Set#7 Convertible Bonds...

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BusM 401 Problem Set #7 Convertible Bonds Instructions: Complete all questions. This problem set is worth 10 points. Problems sets are graded on effort and completeness; you must show your work in order to get full credit. Short answers (“checkpoints”) are available for some questions on Blackboard so that you can check your answers. Full solutions are available on Blackboard after the problem set is due. (Some full answers are found in the back of Higgins; it’s best not to look at these until you have tried your best to answer the question.) Do not be afraid. 1. In March 1999 CNET issued 7-year convertible bonds with a coupon rate of 5%. Each \$1,000 face value bond could be converted at any time before maturity into 26.7 shares of CNET stock. When the bonds were issued, the price of CNET stock was \$32.22. By April 1999 the price of CNET stock had risen to \$71.38. Find the conversion ratio, the conversion price, and the conversion value of the \$1,000 face value CNET convertible bond as of April 1999.

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