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Hi John, in the December 2007 question 1,(b,iii) the examiner calculated the conversion premium of the convertible as current conversion: 20 shares * $4.45 = $89 compared with the market value: $123.84 to give $34.84/20 shares. so the premium per share was $1.74
I thought it was suppose to be like this: current conversion: $4.45 compared with future conversion:the share price will grow by 6.5% p.a (4.45*1.065^5) =$6.10. so the premium would be $1.65 per share.
So please is my calculations wrong or correct.
Thank You.The examiners answer is correct.
What you have calculated is the amount by which the share price is expected to grow, which is nothing to do with the premium on converting debt.
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