Question 2 A company is selling a 10-year convertible bond (with face value of $1,000) for $930 in the market. The bond has a 6% coupon, payable semiannually. The yield to maturity of similar bonds is 8%. The conversion price is $50, and the stock currently sells for $45.

a) What is the conversion value?

b) What is the straight bond value? What is the minimum price of the convertible bond?

c) If stock price is expected to grow at 5% per year. Based on prior experience, the bond won't be called unless the conversion value is $1200. What value should be assigned to this bond?

A company is selling a 10-year convertible bond (with face value of $1,000 ) for $930 in the market. The bond has a 6% coupon, payable semiannually. The yield to maturity of similar bonds is 8%. The conversion price is $50, and the stock currently sells for $45. a) What is the conversion value? b) What is the straight bond value? What is the minimum price of the convertible bond? c) If stock price is expected to grow at 5% per year. Based on prior experience, the bond won't be called unless the conversion value is $1200. What value should be assigned to this bond