A $1,000 convertible bond is to be issued with a call premium of $90 and a coupon
Question:
A $1,000 convertible bond is to be issued with a call premium of $90 and a coupon of 0.12. Straight debt could be issued at a cost of 0.16. The bond is callable any time after year 4.
Is this convertible bond a good investment, compared to straight debt, if a zero-tax investor thinks that the bond will be called at year 5? Explain with numerical justification.
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Related Book For 
An Introduction To Accounting And Managerial Finance A Merger Of Equals
ISBN: 9789814273824
1st Edition
Authors: Harold JR Bierman
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