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QUESTION 14 ABC Inc. just issued a convertible bond due in 10 years and the bond has an 8 percent coupon paid semi-annually. The conversion
QUESTION 14
- ABC Inc. just issued a convertible bond due in 10 years and the bond has an 8 percent coupon paid semi-annually. The conversion ratio is 25 shares. The interest rate for straight debt is 10%. The current share price is $28 per share. Each convertible bond is trading at $900 in the market.
- 1. What is the straight bond value?
- 2. What is the conversion value?
- 3. What is the option value of the bond?
- 4. If the company ABC performs poorly, your convertible option has chance to be exercised? Why?
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Survey of Accounting
Authors: Edmonds, old, Mcnair, Tsay
2nd edition
9780077392659, 978-0-07-73417, 77392655, 0-07-734177-5, 73379557, 978-0073379555
