A firm has just issued a 25-year callable, convertible bond with a coupon rate of 3 percent and annual coupon payments. The bond has a conversion price of $97.20. The company's stock is selling for $40 per share. The owner of the bond will be forced to convert if the bond's conversion value is ever greater than or equal to $600. The required return on an otherwise identical nonconvertible bond is 10 percent. Assume a par value of $1,000.

What is the minimum value of the bond?

 

You have been hired to value a new 25-year callable, convertible bond with a par value of $1,000. The bond has a coupon rate of 8 percent, payable annually. The conversion price is $100 and the stock currently sells for $42.10. The stock price is expected to grow at 14 percent per year. The bond is callable at $1,200; but based on prior experience, it won't be called unless the conversion value is $1,300. The required return on this bond is 8 percent.

 

What value would you assign to this bond?

Do not round intermediate calculations and enter your answer rounded to the nearest cent.

Q3. A firm has a zero coupon bond issue outstanding with a face value of $13,000 that matures in one year. The current market value of the firm's assets is $13,300. The standard deviation of the return on the firm's assets is 33 percent per year and the annual risk-free rate is 7 percent per year, compounded continuously. What is the market value of the firm's debt?

Round your answer to the nearest cent.

Tip: viewing the firm in terms of options allows us to use the Black-Scholes Model.