Question
Suppose MGM issued a convertible (non-callable) bond with an annual coupon of 15% that matures in 3 years. The conversion ratio is 29.45 shares of
Suppose MGM issued a convertible (non-callable) bond with an annual coupon of 15% that matures in 3 years. The conversion ratio is 29.45 shares of stock per bond and Disneys stock is currently trading at $32 per share. The convertible bond is priced at $1000 in the market and the appropriate discount rate is 15%.
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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Introduction To Finance Financial Management And Investment Management
Authors: Pamela P. Drake, Frank J. Fabozzi, Francesco A. Fabozzi
1st Edition
9811239657, 978-9811239656
