A convertible loan stock of Tower plc currently trades in the capital market at 140 per 100
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A convertible loan stock of Tower plc currently trades in the capital market at £140 per £100 nominal. The stock pays annual interest of £11 per £100 nominal and may be converted in exactly five years’ time at a rate of 50 ordinary shares in the business per £100 nominal of loan stock. The present price of the ordinary shares is £2.20, which is expected to grow by 5 per cent p.a. over the next five years. What is the cost of the convertible loan stock?
Note that corporation tax is charged at 30 per cent.
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