Problem 6. (10 points): M&E Inc. has an outstanding convertible bond. The bond can be converted into 20 shares of common equity (currently trading at $52/share).
The bond has 5 years of remaining maturity, a $1,000 par value, and a 6% annual coupon. M&Es straight debt is currently trading to yield 5%.
What is the minimum price of the bond?
Solution:
M&E share price
Number of shares M&E's bond can be converted into =
If converted, the debt is worth:
YTM for M&E's debt:
Maturity of the bond:	5	Years
Coupon rate:	6%
Par value of the bond:	$ 1,000.00
The minimum price of the bond: