WK6 PA2

Maple Aircraft has issued a 4¾% convertible subordinated debenture due 3 years from now. The
conversion price is $47.00 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.
a. In the absence of the conversion feature, what is the current yield and yield to maturity?
b. What is the conversion ratio of the debenture?
c. If the conversion ratio were 50, what would be the conversion price?
d. What is the conversion value?
e. At what stock price is the conversion value equal to the bond value?
f. Can the market price be less than the conversion value?
g. How much is the convertible holder paying for the option to one share of common
stock?
h. By how much does the common have to rise after 3 years to justify conversion?
Please explain your answer in detail and provide in-text citations.

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 6 pages.  needed 8 references from the book (attached). APA 7th fromat