AOB, Inc., has issued 2 shares of common stock and 1 convertible bond. AOB is valued at

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AOB, Inc., has issued 2 shares of common stock and 1 convertible bond. AOB is valued at \(V=100\). Tomorrows value, \(V^{\prime}\), will be either 150 or 50 , with equal chance. The bond has a face value of \(\$ 30\) and carries a coupon of \(10 \%\). The conversion ratio is \(1: 1\). The bond is due tomorrow. The risk free rate is \(10 \%\). Value the bond.

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Lectures On Corporate Finance

ISBN: 9789812568991

2nd Edition

Authors: Peter L Bossaerts, Bernt Arne Odegaard

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