Question $21$

You are considering purchasing a new issue of convertible

bonds by The Technoverve Co$.$ These securities have a face

value of $$1,000,$ pay $1\mathrm{.}10\%($annual$)$ coupons, mature in

three years, and have a conversion ratio of $30\mathrm{.}7692.$ You

have analyzed several straight$-$bonds issued by firms in the

industry, and you feel that it is reasonable to assume that

the straight$-$bond component of these bond is $$850.$

Technoverve's stock is currently trading for $$28\mathrm{.}62,$ you

estimate that the Sigma of the shares is $0\mathrm{.}35,$ and the

current yield on three$-$year T$-$Bonds is $4\mathrm{.}25\%.$ Based on

these values and your assumptions, what is a reasonable

value for the instruments?

$$995\mathrm{.}12$

$$1,191\mathrm{.}53$

$$1,078\mathrm{.}54$

$$1,151\mathrm{.}54$

$$1,059\mathrm{.}88$