Today is the morning of Jan 2, Year 5. XYZ Inc has exchange-listed convertible bonds outstanding. The coupon rate is 8.59% with the coupon payable every six months. The yield is 7.33% compounded semi-annually. The maturity is on July 2, Year 14 (i.e. in 9.5 years), and the coupon is payable every January 2 and July 2. Each $1,000 face value convertible bond converts into 59 XYZ shares. The XYZ shares are currently trading at $18.73 per share. The delta of long-dated, at-the-money XYZ call options is 0.8 and is not expected to change with short-term changes in prices of the underlying. Comparable plain-vanilla (non-convertible) bonds with the same maturity. coupon, and credit risk are yielding 7.75%. What is the revised expected price of one convertible bond today if the plain-vanilla bond yields drop by 25 basis points and the share price rises to $20.99 per share? $1,088.27 $1,118.50 $1,148.73 $1,178.96 $1,209.19
Today is the morning of Jan 2, Year 5. XYZ Inc has exchange-listed convertible bonds outstanding. The coupon rate is 8.59% with the coupon payable every six months. The yield is 7.33% compounded semi-annually. The maturity is on July 2, Year 14 (i.e. in 9.5 years), and the coupon is payable every January 2 and July 2. Each $1,000 face value convertible bond converts into 59 XYZ shares. The XYZ shares are currently trading at $18.73 per share. The delta of long-dated, at-the-money XYZ call options is 0.8 and is not expected to change with short-term changes in prices of the underlying. Comparable plain-vanilla (non-convertible) bonds with the same maturity. coupon, and credit risk are yielding 7.75%. What is the revised expected price of one convertible bond today if the plain-vanilla bond yields drop by 25 basis points and the share price rises to $20.99 per share? $1,088.27 $1,118.50 $1,148.73 $1,178.96 $1,209.19
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 9P
Related questions
Question
![Today is the morning of Jan 2, Year 5. XYZ Inc has exchange-listed convertible bonds
outstanding. The coupon rate is 8.59% with the coupon payable every six months.
The yield is 7.33% compounded semi-annually. The maturity is on July 2, Year 14 (i.e.
in 9.5 years), and the coupon is payable every January 2 and July 2. Each $1,000 face
value convertible bond converts into 59 XYZ shares. The XYZ shares are currently
trading at $18.73 per share. The delta of long-dated, at-the-money XYZ call options
is 0.8 and is not expected to change with short-term changes in prices of the
underlying. Comparable plain-vanilla (non-convertible) bonds with the same maturity,
coupon, and credit risk are yielding 7.75%. What is the revised expected price of one
convertible bond today if the plain-vanilla bond yields drop by 25 basis points and
the share price rises to $20.99 per share?
O $1,088.27
O $1.118.50
$1,148.73
O $1,178.96
O $1,209.19](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fcc47ea21-5bbf-4f45-b0e1-850a1d85988e%2F7bfa4cba-9031-43fd-b0c6-3ca549c002ee%2Fdyvrosy_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Today is the morning of Jan 2, Year 5. XYZ Inc has exchange-listed convertible bonds
outstanding. The coupon rate is 8.59% with the coupon payable every six months.
The yield is 7.33% compounded semi-annually. The maturity is on July 2, Year 14 (i.e.
in 9.5 years), and the coupon is payable every January 2 and July 2. Each $1,000 face
value convertible bond converts into 59 XYZ shares. The XYZ shares are currently
trading at $18.73 per share. The delta of long-dated, at-the-money XYZ call options
is 0.8 and is not expected to change with short-term changes in prices of the
underlying. Comparable plain-vanilla (non-convertible) bonds with the same maturity,
coupon, and credit risk are yielding 7.75%. What is the revised expected price of one
convertible bond today if the plain-vanilla bond yields drop by 25 basis points and
the share price rises to $20.99 per share?
O $1,088.27
O $1.118.50
$1,148.73
O $1,178.96
O $1,209.19
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