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A convertible bond issued has the following characteristics. Please calculate (1) minimum value and (2) market conversion premium. Maturity = 12 years Coupon rate =

A convertible bond issued has the following characteristics. Please calculate (1) minimum value and (2) market conversion premium.

Maturity = 12 years

Coupon rate = 7%

Coupon payment twice a year

Conversion ratio = 45

Par value = $1000

Market price of convertible bond = $1575

Market price of common stock = $30

Yield on a comparable straight bond = 6%

(1) What is the minimum price of the bond?

(2) What is conversion premium per share?

(3) What is the investment return of the convertible bond when the stock price increases to $55?

(4) What is the investment return of the common stock when the stock price increases to $55?

(5) What is the investment return of the convertible bond when the stock price drops to $10?

(6) What is the investment return of the common stock when the stock price drops to $10?

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1 The minimum value of the bond can be calculated using the present value of the coupons and the present value of the par value at maturity The present value of the coupons is PV of coupons 2 7 1000 1... blur-text-image

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