Question
6. Assume that ABC Company successfully issues a 6% convertible bond, due 12 years from now at $1,000 per bond. The bond pays interest 2
6. Assume that ABC Company successfully issues a 6% convertible bond, due 12 years from now at $1,000 per bond. The bond pays interest 2 times per year. Also, assume that the bond is convertible into 100 shares of stock anytime during the life of the bond. Assume the common stock of the company is selling for $8 per share at the time the convertible bond is issued. The last assumption is that if ABC Company issued a regular bond (not convertible), they would have to sell the bond with a 9% coupon instead of the 6% on the convertible.
Using the information above, calculate the minimum value for the convertible if:
(A) ABC common stock trades at $14 per share
(B) The stock trades at $6 per share
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started