Question
A 9-year maturity convertible bond with a 6% annual coupon on a company with a bond rating of AAA is selling for $1,032. Each bond
A 9-year maturity convertible bond with a 6% annual coupon on a company with a bond rating of AAA is selling for $1,032. Each bond can be exchanged for 50 shares, and the stock price currently is $20 per share. Other AAA-rated bonds with the same maturity would sell at a yield to maturity of 7%. What is the value of the implicit call option on the bond?
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Fundamentals of Corporate Finance
Authors: Richard Brealey, Stewart Myers, Alan Marcus
7th edition
978-0077616472, 77616472, 78034647, 978-0071314749, 71314741, 978-0078034640
