Hannon's Convertible Bonds
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:
1. What is the conversion ratio?
2. What is the conversion price?
3. What is the conversion premium?
4. What is the conversion value?
5. If the value of Hannon's common stock increases by $2, what will the conversion value be?