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How do calculate the market value of the bond

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Reference no: EM132976810

An 8% convertible bond can be converted in three years time into 15 ordinary shares or redeemed at nominal value of £100 on the same date.

The required rate of return on the bond is 9%. The current share price is £4.75 and is expected to grow by 7% per year.

Required:

Problem 1: Calculate the market value of the bond if it is converted and if it is redeemed, and identify what action an investor holding the bond is likely to take.

Reference no: EM132976810

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