Lena plc has in issue 12% convertible bonds which will be redeemed in 10 years’ time and which are currently selling at €94. Interest on the bonds is paid annually and each €100 bond is convertible into 30 shares at any time over the next two years. The current market price of Lena plc’s ordinary shares is €4.80 per share and this is expected to increase by 15% per year for the foreseeable future. Bonds of a similar risk class are currently yielding 10% Required : Advise an investor holding some of Southwark’s convertible bonds as to which of the following courses of action to take: a) Sell convertible bond now b) Convert the bond now or within the next two years c) Hold the bond to maturity
Lena plc has in issue 12% convertible bonds which will be redeemed in 10 years’ time and which are currently selling at €94. Interest on the bonds is paid annually and each €100 bond is convertible into 30 shares at any time over the next two years. The current market price of Lena plc’s ordinary shares is €4.80 per share and this is expected to increase by 15% per year for the foreseeable future. Bonds of a similar risk class are currently yielding 10% Required : Advise an investor holding some of Southwark’s convertible bonds as to which of the following courses of action to take: a) Sell convertible bond now b) Convert the bond now or within the next two years c) Hold the bond to maturity
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Lena plc has in issue 12% convertible bonds which will be redeemed in 10 years’ time and which are currently selling at €94. Interest on the bonds is paid annually and each €100 bond is convertible into 30 shares at any time over the next two years. The current market price of Lena plc’s ordinary shares is €4.80 per share and this is expected to increase by 15% per year for the foreseeable future. Bonds of a similar risk class are currently yielding 10% Required : Advise an investor holding some of Southwark’s convertible bonds as to which of the following courses of action to take:
a) Sell convertible bond now
b) Convert the bond now or within the next two years
c) Hold the bond to maturity
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