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1. Shares in the Marrero Corporation are trading at $25. In one year, the per share price could be $20 or $30. One year to maturity T-bills are paying 10 per cent.
a. What is the value of the call option with a $20 exercise price?
b. What is the value of the call option with a $26 price?
2. Estelle, Inc. convertible bond issue is selling on the market at $950. Each bond can be converted to 100 shares of the company at the option of the bond holder. The bond is burdened with a 7 per cent annual coupon with a 10 year maturity. The debt is BBB rated. Furthermore, the debt with BBB rating is priced to yield 12 per cent. Currently the shares in Estelle are trading at $7. With respect to the Estelle's bond,
what is:
a. the conversion ratio on the bond
b. conversion price
c. conversion premium
d. floor value and
e. value of the option?
Verified Expert
The solution has been completed in word document, In the said assignment I had to calculate the value of call and put option.
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