Multiple Choice
Valdes Enterprises is considering issuing a 10-year convertible bond that would be priced at its $1,000 par value.The bonds would have an 8.00% annual coupon,and each bond could be converted into 20 shares of common stock.The required rate of return on an otherwise similar nonconvertible bond is 10.00%.The stock currently sells for $40.00 a share,has an expected dividend in the coming year of $2.00,and has an expected constant growth rate of 5.00%.What is the estimated floor price of the convertible at the end of Year 4?
A) $901.28
B) $924.39
C) $948.09
D) $972.41
E) $996.72
Correct Answer:
Verified
Correct Answer:
Verified
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