question archive Your firm has a convertible bond with 5 years to maturity and a $1000 face value
Your firm has a convertible bond with 5 years to maturity and a $1000 face value
Subject:FinancePrice: Bought3
Your firm has a convertible bond with 5 years to maturity and a $1000 face value. The annual coupon rate is equal to your debt rate. Similar nonconvertible bonds are priced to yield 8%. The current price of the convertible bond is 10% more than the price of the nonconvertible bond. Each bond can be converted into 20 shares of stock. Use your current stock price to find the bond's option premium. Will the bond holder convert the bond? Explain. If any assumptions had to be made, please indicate the assumptions
