You are the CFO of RealNetworks on July 1, 2008. The company\'s stock price is $
ID: 2774380 • Letter: Y
Question
You are the CFO of RealNetworks on July 1, 2008. The company's stock price is $9. 44 and its convertible debt is now callable. See the table below: What is the value of the shares the bondholders would receive per 51,000 bond if they convert? What is the value of the shares the bondholders would receive per 51,000 bond if they convert? The value the bondholders would receive is $ (Round to the nearest cent.) What is the value per 51,000 bond they would receive under the call? The value they would receive under the call is $ . (Round to the nearest cent.)If you call the bonds, will the bondholders convert into shares or accept the call price? (Select from the drop-down menus.) Bondholders convert into shares if you call the bonds, as the value of converting is than the value received under the call.Explanation / Answer
a) Conversion Ratio is 107.4089 shares per $1000 pricipal amount.
No. of shares the bondholders will receive per $1000 bond if they convert = 107.4089
Stock Price = $9.44
Value of the shares the bondholders will receive per $1000 bond if they convert = 107.4089 * 9.44 = $1013.94
b) Call Price = 100% of par
Par Value = $1000
Thus, the value per $1000 bond that the bondholders would receive if the bonds are called
= 100% * 1000 = $1,000
c) If the bonds are called, the bondholders will convert into shares as the value of converting is more than the value received under the call.
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