Maple Aircraft has issued a 4¾% convertible subordinated debenture due 3 years from now. The conversion price is $47 and the debenture is callable at 102.75% of face value. The market price of the convertible is 91% of face value, and the price of the common is $41.50. Assume that the value of the bond in the absence of a conversion feature is about 65% of face value.
- In the absence of the conversion feature, what is the current yield and yield to maturity?
- What is the conversion ratio of the debenture?
- If the conversion ratio were 50, what would be the conversion price?
- What is the conversion value?
- At what stock price is the conversion value equal to the bond value?
- Can the market price be less than the conversion value?
- How much is the convertible holder paying for the option to buy one share of common stock?
- By how much does the common have to rise after three years to justify conversion?
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