Hannon Home Products, Inc., recently issued $430,000 worth of 8 percent convertible
debentures. Each convertible bond has a face value of $1,000. Each convertible bond can be
converted into 28 shares of the firm’s common stock anytime before maturity.The current
price of Hannon’s common stock is $31.25 per share, and the market value of each of
Hannon’s convertible bonds is $1,180.Answer the following questions related to Hannon’s
convertible bonds:
a. What is the conversion ratio?
b. What is the conversion price?
c. What is the conversion premium?
d. What is the conversion value?
e. If the value of Hannon’s common stock increases by $2, what will the conversion
value be?
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