Question
Suppose Disney issued a convertible (non-callable) bond with an annual coupon of 10% that matures in 5 years. The conversion ratio is 26.32 shares of
Suppose Disney issued a convertible (non-callable) bond with an annual coupon of 10% that matures in 5 years. The conversion ratio is 26.32 shares of stock per bond and Disneys stock is currently trading at $30 per share. The convertible bond is priced at $900 in the market and the appropriate discount rate is 13%.
- What is the Straight Bond Value of this convertible?
- What is the Option Value of the Bond?
- What is the Conversion Value of the Bond?
- Based solely on todays values, should you convert?
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Financial Markets and Institutions
Authors: Anthony Saunders, Marcia Cornett
6th edition
9780077641849, 77861663, 77641841, 978-0077861667
