A 14-year maturity convertible bond with a face value of $1,000 and a 8% coupon on a company with a bond rating of Aaa is selling for $1,040. The bond pays interest annually. Each bond can be exchanged for 20 shares, and the stock price currently is $50 per share. Other Aaa-rated bonds with the same maturity would sell at a yield to maturity of 10%. What is the value of the bondholders’ call option? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
A 14-year maturity convertible bond with a face value of $1,000 and a 8% coupon on a company with a bond rating of Aaa is selling for $1,040. The bond pays interest annually. Each bond can be exchanged for 20 shares, and the stock price currently is $50 per share. Other Aaa-rated bonds with the same maturity would sell at a yield to maturity of 10%. What is the value of the bondholders’ call option? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter4: Bond Valuation
Section: Chapter Questions
Problem 8MC: Suppose a 10-year, 10% semiannual coupon bond with a par value of 1,000 is currently selling for...
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A 14-year maturity convertible bond with a face value of $1,000 and a 8% coupon on a company with a bond rating of Aaa is selling for $1,040. The bond pays interest annually. Each bond can be exchanged for 20 shares, and the stock price currently is $50 per share. Other Aaa-rated bonds with the same maturity would sell at a yield to maturity of 10%. What is the value of the bondholders’ call option? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
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