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Determine whethe is better for convertible bond holder

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Reference no: EM132505460

Bukit, Inc issued a convertible bond that pays 5% semi-annual coupon (Face value is $1,000). If you purchase this bond, you have an option to convert this bond into 20 shares of Sage's common stock. Today, the convertible bond has 5 years to maturity and its YTM is 5%. The market price of Bukit's common stock is $48 per share today.

Question 1: If the stock's beta is 1.5 while the market risk premium is 8% and the risk-free rate is 2%, determine whether it is better for the convertible bond holders to convert their bonds today.

Reference no: EM132505460

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