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Why a bond can sell the conversion value

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Reference no: EM132982284

Question - NBC software Co has $10 million (face value) of convertibles bonds outstanding at the end of 2012. The features of each bond together with the current stock price are shown on the table below.

Bond face value $1000

Conversion Price $20

Current call price 110 (percent of face value)

Current trading price 125 (percent of face value)

Maturity 2020

Current share price of NBC software Co $30 (per share)

Annual coupon rate (interest rate) 10%

Required -

a) Calculate the bond's conversion value.

b) Why a bond's can sell above the conversion value.

c) Discuss the relative merits of discounted cash flows methods (DCF) over non DCF methods.

Reference no: EM132982284

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