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A convertible bond is selling for $967, matures in 15 years, has a $1,000 face value,...

A convertible bond is selling for $967, matures in 15 years, has a $1,000 face value, pays interest semiannually, and has a coupon rate of 8 percent. Similar non-convertible bonds are priced to yield 4.25 percent per six months. The conversion ratio is 20. The stock currently sells for $47.50 a share. Calculate the convertible bond's option value.

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Answer #1

Convertible bonds option value:

Convertible bonds value=conversion ratio *market price of the stock

Convertible bonds value=20*47.50

Convertible bonds value = 950

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