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What is the value of the implicit call option on the bond

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Reference no: EM132970440

Problem 1: A 7-year maturity convertible bond with a 4% annual coupon on a company with a bond rating of AAA is selling for $1,044. Each bond can be exchanged for 40 shares, and the stock price currently is $25 per share. Other AAA-rated bonds with the same maturity would sell at a yield to maturity of 9%. What is the value of the implicit call option on the bond (show work for partial marks)?

Reference no: EM132970440

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