Essay
You own a $1,000 face value convertible bond with a coupon rate of 6% that matures in 5 years. The market rate on similar bonds is currently 7%. The conversion ratio is 15.5 and the stock is currently selling for $70 per share. What is the current value of this bond? Justify your answer.
Correct Answer:
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Conversion value = 15.5 × $70 = $1,085
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