Question
You have bought the exchange-listed convertible bonds of a company today on Jan 2, 20X1, immediately after the coupon payment. The bond has the following
You have bought the exchange-listed convertible bonds of a company today on Jan 2, 20X1, immediately after the coupon payment. The bond has the following features: Coupon rate of 5.10% (compounded semi-annually, coupon payable every six months); yield-to-maturity of 3.31% (compounded semi-annually); maturity on Jan 2 of 20X9; and coupon payable on every Jan 2 and Jul 2. Each $1,000 face value convertible bond converts into 30 company shares. Comparable plain-vanilla (non-convertible) bonds with the same maturity, coupon, and credit risk are yielding 4.21% compounded semi-annually. The company shares are currently trading at $36.34 per share. The company doesn't pay any dividend. The delta of long-dated, at-the-money call options on the company's shares is 0.517 and is not expected to change with short-term changes in prices of the underlying. What is the price of the convertible bond (per $1,000 face value) today?
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