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Unformatted text preview: e payment of annual rather than semiannual bond interest.
This assumption simplifies the calculations involved, while maintaining the conceptual accuracy of the procedures
presented. CHAPTER 16 Hybrid and Derivative Securities 689 $1,000 par value. The conversion values of the bond when the stock is selling
at $30, $40, $50, $60, $70, and $80 per share are shown in the following
Market price of stock
40 Conversion value
800 50 (conversion price) 1,000 (par value) 60 1,200 70 1,400 80 1,600 When the market price of the common stock exceeds the $50 conversion
price, the conversion value exceeds the $1,000 par value. Because the straight
bond value (calculated in the preceding example) is $867.76, the bond will, in a
stable environment, never sell for less than this amount, regardless of how low its
conversion value is. If the market price per share were $30, the bond would still
sell for $867.76—not $600—because its value as a bond would dominate. Market Value market premium
The amount by which the market
value exceeds the straight...
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This document was uploaded on 01/19/2014.
- Fall '13