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Unformatted text preview: ue and conversion (or stock) value are nearly
equal. Investors perceive the benefits of these two sources of value to be greatest
at this point. Review Questions
16–6 What is the conversion feature? What is a conversion ratio? How do convertibles and other contingent securities affect EPS? Briefly describe the
motives for convertible financing.
16–7 When the market price of the stock rises above the conversion price, why
may a convertible security not be converted? How can the call feature be
used to force conversion in this situation? What is an overhanging issue? 690 PART 6 Special Topics in Managerial Finance FIGURE 16.1
Value of Convertible Bond ($) Values and Market
The values and market
premium for Duncan
Company’s convertible bond Market Value
Conversion Value Market
Premium 1,200 Straight Bond Value 1,000
0 10 20
Price per Share of Common Stock ($) 90 16–8 Define the straight bond value, conversion (or stock) value, market value,
and market premium associated with a convertible bond, a...
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- Fall '13