What is the minimum price of the convertible bond

Reference no: EM131962679

Question: Convertible Bonds

You own a bond maturing in 10 years that has a $100 face value and a 6% coupon rate payable semi-annually. The yield to maturity on similar bonds is 5% compounded semi-annually. The bond is also convertible with a conversion ratio of 4.5. The stock is currently selling for $25.

a) What would be the value of the convertible bond if it were merely a straight bond without any conversion option?

b) What is the conversion value of the bond?

c) What is the minimum price of the convertible bond?

Reference no: EM131962679

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