•You have been hired to value a new 25 year callable, convertible bond. The bond has a 4.8 percent coupon, payable annually. The conversion price is $9, and the stock currently sells for $3.21. The stock price is expected to grow at 11 percent per year. The bond is callable at $120, but, based on prior experience, it won't be calledunlessthe conversion value is $130. The required return on this bond is 8 percent. Par value of the bond is $100. What value would you assign to this bond?
Hello
Straight Bond:
N = 25, PMT = $4.8, FV = $100, r = 8%
Current value of straight bond = $65.84
Conversion ratio: CR = FV/CP = 100/9
Conversion value: CV = P*CR = 3.21*(100/9) = $35.67
Current conversion price = $35.67
Bond will be called when conversion price is $130
Current value of convertible bond = $86.97
I hope this clears your query.
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•You have been hired to value a new 25 year callable, convertible bond. The bond has...
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