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Illustrate the floor value of the convertible bond

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In the end of 2010, Morgan Inc. issued 6.125% convertible bonds due in 2018. Each bond was convertible into 5,356 shares of Morgan equity any time before maturity. When Morgan issued the convertible bonds, its share price is £16.55. The conversion price is 18.671. Suppose that straight bond issued by Morgan was priced to yield 8% per year in the end of 2010.

Problem (a) Calculate the current value of the straight bond.

Problem (b) Briefly explain the term of conversion ratio and calculate the  conversion value of the bond.

Problem (c) Illustrate the floor value of the convertible bond.

Problem (d) What are call options and warrants? Outline the major  differences between warrants and call options.

Reference no: EM132906740

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