Answer:
A. $880
B. -$752.23
Explanation:
To find the conversion value of the issue, we start with this calculation
The initial step is to compute the Conversion ratio using the following formula
Conversion ratio = Par value of security/ Conversion price
Substituting, we find
Conversion ratio = $1,000/$25
Thus, Conversion ratio = 40
Next, we determine the Conversion value with this formula
Conversion value = Conversion ratio * Conversion price
Substituting gives
Conversion value = 40*$22 per share
Therefore, the conversion value of the issue equals $880
B. Now calculating the Straight bond value of the issue
Using a financial calculator for Present Value (PV)
PMT = 8%*1,000 = 80
N = 12 years
1/Y = 12%
FV = 1,000
Thus, PV = -$752.23
This means the Straight bond value of the issue is -$752.23