Vernon Glass Company has $10 million in 10 percent convertible bonds outstanding. The conversion ratio is 60, the stock price is $15, and the bond matures in 10 years. The bonds are currently selling at a conversion premium of $65 over their conversion value.
If the price of the common stock rises to $21 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 $65 to $15. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
What is the RATE OF RETURN?
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