XYZ Corporation has a 10-year zero-coupon convertible bond which is convertible to the common stock of XYZ.

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XYZ Corporation has a 10-year zero-coupon convertible bond which is convertible to the common stock of XYZ. The stock is trading at $50, and the conversion option allows each $1000 face-value bond to be converted to 10 shares. The bond is trading at $550.

a. Should a bondholder convert the bond into common stock under current market condition?
b. What would be the value of a similar non-convertible bond if the YTM on a non-convertible bond is 8%?
c. Suppose one year later the conversion value of the bond remains unchanged. What is the estimate of the bond's value one year later?

Posted Date: May 11, 2024 04:50 AM

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XYZ Corporation has a 10-year zero-coupon convertible bond which is convertible to the common stock of XYZ.

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Expert Answer:

a To determine whether a bondholder should convert the bond into common stock we need to compare the value of the bond and the value of the stock rece... View the full answer

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