Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Convertible loan notes
- This topic has 4 replies, 2 voices, and was last updated 7 years ago by John Moffat.
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- August 29, 2016 at 5:01 am #335862
Hi sir, for the question below, the growth in share price is not given. And so how do i calculate the share price in year 4 , in order to determine if conversion is likely or not ?
Also the interest rate on the convertible bond isn’t given. So how do i find the market value of the bond ?
Qn: Saul co has issued $40 million convertible bonds at $106 per $100 nominal value. The bonds may be converted into ordinary shares in 4 years time at a rate of 12 shares for every $100 of convertible bonds. The ordinary shares are currently trading at a price of $8 per share.
What is the conversion premium per underlying share ?
Answer : A
August 29, 2016 at 5:02 am #335863Sorry a typo in the previous post.
The answer : $0.83August 29, 2016 at 6:52 am #335892The conversion premium is calculated on the current share price.
So it is 106 – (12 x $8) = £10 in total.
Since there are 12 underlying shares, it is $10/12 = $0.83 per underlying share.
August 29, 2016 at 4:00 pm #336038Okay thank you sir
August 29, 2016 at 7:51 pm #336082You are welcome 🙂
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