Given the following features of the XYZ convertible bond: Coupon rate (annual) = 10% (annual compounding) Face
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Given the following features of the XYZ convertible bond:
Coupon rate (annual) = 10% (annual compounding)
Face value = F = $1,000 Maturity = 10 years Callable at $1,100 YTM on a comparable, nonconvertible bond = 12%
Conversion ratio = 10 shares Current stock price = S0 = $90 Calculate the following:
a. XYZ’s conversion price
b. XYZ’s conversion value
c. XYZ’s straight debt value
d. Minimum price of the convertible
e. The arbitrage strategy if the price of the convertible were $880
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Kirti Kaushal
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