# This assumption simplifies the calculations involved

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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 table. Market price of stock \$30 40 Conversion value \$ 600 800 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.

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