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  3. the following facts apply to a convertible bond ma

The following facts apply to a convertible bond making semiannual payments: Conversion price $ 37 /share...

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Finance

The following facts apply to a convertible bond makingsemiannual payments: Conversion price $ 37 /share Coupon rate 2.6 %Par value $ 1,000 Yield on nonconvertible debentures of samequality 5 % Maturity 25 years Market price of stock $ 34 /share

a. What is the minimum price at which the convertible shouldsell? (Do not round intermediate calculations and round your answerto 2 decimal places, e.g., 32.16.)

Answer & Explanation Solved by verified expert
4.3 Ratings (701 Votes)
The minimum price at which the convertible should sell is the higher of the straight value of the bond or the conversion price of the bond aStraight Value of the Bond The Straight Value of the Bond is the Present Value of the Coupon Payments plus the Present Value of the Face ValuePar Value The Price of the    See Answer
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The following facts apply to a convertible bond makingsemiannual payments: Conversion price $ 37 /share Coupon rate 2.6 %Par value $ 1,000 Yield on nonconvertible debentures of samequality 5 % Maturity 25 years Market price of stock $ 34 /sharea. What is the minimum price at which the convertible shouldsell? (Do not round intermediate calculations and round your answerto 2 decimal places, e.g., 32.16.)

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