A firm issues 4% convertible loan notes that are redeemable in 4 years’ time at a per-note nominal value of £100. Each loan note could alternatively be converted into 15 ordinary shares in 4 years’ time. The cost of debt is 6%. The current share price is £6.20 per share, and future share price growth is expected to be 4% per year. What is the current market value of a convertible loan note to two decimal places?

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Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.