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Please answer showing step by step i simply don't understand it. 16. 15 POINTS You can buy a $1,000 face amount one-year convertible note from
Please answer showing step by step i simply don't understand it.
16. 15 POINTS You can buy a $1,000 face amount one-year convertible note from ABC with 2% interest The interest is paid annually. The bond is convertible into 10 shares of ABC stock and the stock currently is trading at $85 per share. ABC's regular one-year borrowing cost is 3% per year. The following 1-year options on ABC's stock are available: $85 strike call with a price of $6 $85 strike put with a price of $9 $100 strike call with a price $0.80 $100 strike put with a price of $30 a. What is the stock conversion price (3 pts)? b. What is the value of the bond component of this security (4 pts)? c. What is the value of the embedded option package (4 pts)? d. What is the fair price for this convertible security (4 pts)? 16. 15 POINTS You can buy a $1,000 face amount one-year convertible note from ABC with 2% interest The interest is paid annually. The bond is convertible into 10 shares of ABC stock and the stock currently is trading at $85 per share. ABC's regular one-year borrowing cost is 3% per year. The following 1-year options on ABC's stock are available: $85 strike call with a price of $6 $85 strike put with a price of $9 $100 strike call with a price $0.80 $100 strike put with a price of $30 a. What is the stock conversion price (3 pts)? b. What is the value of the bond component of this security (4 pts)? c. What is the value of the embedded option package (4 pts)? d. What is the fair price for this convertible security (4 pts)Step by Step Solution
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