Question
E&F Corporation issued an annual coupon convertible bond with a coupon rate of 9% and a face value of $1,000. The bond will mature 3
E&F Corporation issued an annual coupon convertible bond with a coupon rate of 9% and a face value of $1,000. The bond will mature 3 years from today. The market interest rate is 12%. The conversion ratio is 12 shares. The current stock price is $100 per share.
(i) Calculate the option value of the bond if each convertible bond is trading at $1,320.
(ii) Explain the meaning of your answer in part (i) above.
******NO EXCEL CALCULATIONS PLEASE, please use formula to do it... thank you!
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Managerial Accounting
Authors: John Wild, Ken Shaw
5th edition
978-1259176494, 1259176495, 978-1259347641, 1259347648, 978-0078025600
