What is the intrinsic value of the option

Assignment Help Financial Management

Reference no: EM13857656

Can you please show the equation and the answer for each question...there are 5 questions attached in a word document on 5 separate pages.

Question:

Valuation - corporate bond

A $1,000 corporate bond with 10 years to maturity pays a coupon of 8% (semi-annual) and the market required rate of return is a) 7.2% and b) 10%. What is the current selling price for a) and b)?

Question:

Valuation - convertible bond

You purchased one of AAA Corp.'s 9%, 15-year convertible bonds at its $1,000 par value a year ago when the company's common stock was selling for $25. Similar bonds without a conversion feature returned 10% at the time. The bond is convertible into stock at a price of $35. The stock is now selling for $40.

Question:

Charlie Company is expected to grow at an annual rate of 6% indefinitely. The return on similar stocks is currently 11%. Charlie's board of directors declared a dividend of $1.85 yesterday. What should a share of Charlie Company sell for?

Question:

A $1000 par value convertible bond has a conversion price of $50. It is currently selling for $1,120 despite the fact that the bond's coupon rate and the market rate are equal. The common stock obtained upon conversion is selling for $54 per share. What is the convertible bond's conversion premium?

Question:

The following information refers to a six-month call option on the stock of XYZ, Inc.

Price of the underlying stock: $50
Strike price of the three-month call: $45
Market price of the option: $10

a) What is the intrinsic value of the option?

b) What is the option's time premium at this price?

Lasher, W. R. (2011). Practical Financial Management (6th ed.). Mason, OH: South-Western.

Reference no: EM13857656

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