question archive Your firm has a convertible bond with 3 years to maturity and a $1000 face value
Your firm has a convertible bond with 3 years to maturity and a $1000 face value
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Your firm has a convertible bond with 3 years to maturity and a $1000 face value. The annual coupon rate is equal to 9%. Similar nonconvertible bonds are priced to yield 12%. The current price of the convertible bond is 15% more than the price of the nonconvertible bond. Each bond can be converted into 25 shares of stock. If stock price is $26, 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
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