Answer Happy

Vernon Glass Company has $15 million in 10 percent, $1,000 par value convertible bonds outstanding. The conversion ratio is 45, the stock price is $20, and the bond matures in 5 years. The bonds are currently selling at a conversion premium of $50 over their conversion value. If the price of the common stock rises to $26 on this date next year, what would your rate of return be if you bought a convertible bond today and sold it in one year? Assume on this date next year, the conversion premium has shrunk from $50 to $20. (Hint: Calculate rate of return as (Future bond price - Current bond price + Interest earnings)/Current bond price)) (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Rate of return