Calculation of net present value of convertible bond

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Calculation of Net present value of convertible bond

Aramis Inc. sold $500 million of convertible bonds in March 2000. The bonds had a 20-year maturity, a 5.00% coupon rate, and were sold at their $1,000 par value. The conversion price was set at $50.00 against a current price of $42 per share of common. Assume straight non-convertible debentures of the same quality yielded about 7.50% at the time.

What is the Aramis Inc.'s net present value of its interest savings (convertible versus a straight debt issue?)

Reference no: EM1313306

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