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Can someone help me solve this question and show all work 2. Convertible Bond Suppose you are making a deal with a startup company. The
Can someone help me solve this question and show all work
2. Convertible Bond Suppose you are making a deal with a startup company. The deal looks like this: you lend as a 5-year bond with $100 face value at 5% coupon annually. After the five-year period, this bond mandatorily becomes a stock. It is expected that, in five years from now, this company will pay a constant $10 dividends annually. The associated risk of this company would put it at 5% rate of return for bond and 10% rate of return for stock. (a) Write down the single timeline for cashflow of this deal. (b) Write down the equation that would solve for the price of this deal. Then, solve for the fair value of this deal. (C) Suppose the company is performing better than expected five years from now. What should you doStep by Step Solution
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