Final answer:
To find the price at which the JKL 2.5% corporate bond would sell at a 10% premium to parity, calculate the conversion ratio and multiply by the current stock price, then increase that amount by 10%.
Step-by-step explanation:
To calculate the price at which the JKL 2.5% corporate bond would have to sell to be at a 10% premium to parity when JKL common stock is trading at $60, we first need to determine the bond's conversion ratio. The conversion ratio is the par value of the bond divided by the conversion price. With a conversion price of $50, if the par value is the standard $1,000, then the conversion ratio is $1,000 / $50 = 20 shares. Parity price of the bond is then 20 shares × $60 (current stock price) = $1,200. A 10% premium to parity means that the bond would need to sell at 110% of this parity price, which is $1,200 × 1.10 = $1,320.
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