Question
JoAnns Donuts has issued a zero-coupon 8-year bond that can be converted into 19 JoAnns Donuts shares. Comparable straight bonds are yielding 7%. JoAnns stock
JoAnns Donuts has issued a zero-coupon 8-year bond that can be converted into 19 JoAnns Donuts shares. Comparable straight bonds are yielding 7%. JoAnns stock is priced at $60 a share.(Assume a face value of $1,000 and semi-annual compounding.)
a. Suppose that you had to make a now-or-never decision on whether to convert or to stay with the bond. Which would you do?
b. If the convertible bond is priced at $725, how much are investors paying for the option to buy JoAnns shares? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
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