A convertible bond has a face value of $1,000 and a conversion price of $12.50. The bond has a 6 percent coupon, pays interest semi-annually, and matures in 12 years. Similar bonds are yielding 9 percent. The current price of the stock is $13.40 per share. What is the straight bond value?
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90.
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Kurt owns a convertible bond that matures in three years. The bond has an 8 percent coupon and pays interest semi-annually. The face value of the bond is $1,000 and the conversion price is $25. Similar bonds have a market return of 9.25 percent. The current price of the stock is $26.50 per share. What is the straight bond value?
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91.
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Lucinda owns a convertible bond that matures in six years. The bond has a 9 percent coupon and pays interest annually. The face value of the bond is $1,000 and the conversion price is $22. Similar bonds have a market return of 8.75 percent. The current price of the stock is $21.60 per share. What is the conversion value of this bond?
Conversion value = ($1,000/$22) × $21.60 = $981.82
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92.
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T-bills currently yield 6.3 percent. Stock in Pinta Manufacturing is currently selling for $46 per share. There is no possibility that the stock will be worth less than $39 per share in one year. What is the value of a call option on this stock if the exercise price is $24 per share?
C0 = $46 - [$24/(1 + 0.063)] = $23.42
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