What is the straight value of the convertible bond, Risk Management

Assignment Help:

The current stock price of IOU is $250 and has a standard deviation of 35% per year. The risk-free interest rate is 5% per year compounded continuously. Find the prices of a call and a put which have an exercise price of $270 and expire in four months.

Banana Computer has a perpetual, convertible 7% annual coupon bond outstanding. The bond has a face value of $1,000 and has a conversion price of $40. The required return on an otherwise identical nonconvertible bond is 8%. Banana will never pay dividends and its current stock price is $20.

a. What is the straight value of the convertible bond?

b. What is its conversion value?

c. If Banana's stock price were to grow at 10% per year forever, how long would it take for the bond's conversion value to exceed the bond price?

d. When should the bondholder convert? Why?


Related Discussions:- What is the straight value of the convertible bond

Objectives of risk communication, Objectives of risk communication The ...

Objectives of risk communication The fundamental goal of risk communication, as you may have realized, is to provide meaningful, relevant and accurate information, in  clear  a

Leverage, evaluate the importance of leverage in financial management of a...

evaluate the importance of leverage in financial management of a small company

Stakeholder analysis, Stakeholder Analysis In the case of syringe manag...

Stakeholder Analysis In the case of syringe management plan, the stakeholders include Maribyrnong Council, Yarra Council and other neighboring ones, manufacturers, distributors

Underwriting Principles, Which of the following statements about group insu...

Which of the following statements about group insurance underwriting principles is (are) true? I. If a plan is contributory, 100 percent of the eligible employees must be covered.

Roles and responsibilities for risk management, Determine the roles and res...

Determine the roles and responsibilities for risk management at senior management level • The role and contents of the risk management strategy, including risk profile, risk app

Explain the steps to conduct a health risk assessment, Probelm 1: (a) D...

Probelm 1: (a) Describe the term Risk assessment and outline the provision of the Occupational Safety and Health Act 2005 with respect to risk assessment. (b) Risk Assessmen

Historical simulation approach, 1) What difference does it make to the Var ...

1) What difference does it make to the Var calculated in Example if the exponentially weighted moving average model is used to assign weights to scenarios as described in Section 1

Risk ratios, what are the computations of risk ratios?

what are the computations of risk ratios?

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd