Bernanke Corp. has just issued a 30-year callable, convertible bond with a coupon rate of 6 percent
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Bernanke Corp. has just issued a 30-year callable, convertible bond with a coupon rate of 6 percent annual coupon payments. The bond has a conversion price of $93. The company’s stock is selling for $28 per share. The owner of the bond will be forced to convert if the bond’s conversion value is ever greater than or equal to $1,100. The required return on an otherwise identical nonconvertible bond is 7 percent.
a. What is the minimum value of the bond?
b. If the stock price were to grow by 11 percent per year forever, how long would it take for the bond ’ s conversion value to exceed $1,100?
CouponA coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...
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a The minimum convertible bond value is the greater of the conversion price or the straight bond pri...View the full answer
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Related Book For 
Corporate Finance
ISBN: 978-0077861759
10th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
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