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In class, we typically infer the value of the conversion option on a convertible bond by subtracting the value of the straight bond component of the convertible bond from the price of the convertible bond itself. In this question, assume you are a CFO that is considering the issuance of a convertible bond and wants to determine the fair price at which this bond should sell. Specifically, you are considering the issuance of a convertible bond with a face value of $100M, a maturity of 10 years, and an annual coupon rate of 6 percent. The conversion option is European and can only be exercised on the day before maturity. The conversion ratio is 2M shares. Based on your firm's credit rating and regular bonds that have been issued by your firm in the past, you determine the expected return on straight debt to be 5 percent. Given that the convertible bond is issued, assume that the stock price can take on only one of three values on the day before maturity: $30 (State B), $60 (State M), or $90 (State G). The respective risk-neutral probabilities are 40 percent, 40 percent, and 20 percent. Because we are given risk-neutral probabilities, the proper discount rate for the expected payoff from the conversion option is the riskfree rate, which we will assume is 4 percent. What is the value of the straight bond component of the convertible bond? What is the payoff of the conversion option in each of the three states of the world on the day before maturity? The option payoff is given by max{ST Times 2M - final bond payment, }. What is the value of the conversion option today? This is calculated as the present value of the expected payoff from the conversion option. Based on your numbers in (a) and (c), what is the value of the convertible bond?
Identify 2 or 3 examples of process improvement opportunities in your chosen organization's industry. Identify 2 or 3 process improvement opportunities in your selected organization.
Suggest specific improvements that could be made in these functions and why (cite principles you have learned). Describe how these improvements might be implemented and sustained
A production plant with annual rent of 100,000 SAR and a total salary of 25,000 SAR per month. The variable cost per unit is 40 SAR and it is sold for 100 SAR. What are the break-even quantity and cost? Illustrate with a break-even chart.
What is the probable outcome of not filing the accident report on time and with complete honesty?
Consider the differences between qualitative, quantitative, mixed methods, and action research. Discuss your basic understanding of each strategy.
Employees of the University are permitted to contribute a portion of their paychecks to a flexible spending account to cover healthcare expenses that are not covered by their insurance plan. With that contribution amount, what is the probability that..
You are the legal advisor who has experience in protecting the assets of a company and individuals. Based on the readings, define three (3) of the different types of business structures. Examine at least two (2) advantages and two (2) disadvantages o..
Mike sends a letter to Michelle in which he falsely accuses her of embezzling. This is defamation if the letter is read by: A) a public figure B) any third person C) Michelle D) only Michelle's employer or potential employer
Edward Hanousek worked for Pacific and Arctic Railway and Navigation Company (P&A) as a road master of the White Pass & Yukon Railroad in Alaska. Did Hanousek have the required mental state (mens rea) to be convicted of a crime? Why or why not? Which..
Why aren't half of the questions answered for the $14.95 a month membership that I’m paying for? What exactly am I paying for? This is a scam. Over half of the questions and answers for the supply chain management: strategy, planning and operation 6t..
Analyze why you think that the Securities Act of 1933 allows for an exemption to a nonprofit educational organization? What is the purpose of registering securities before they are offered for sale?
Pick a company that is easy to find out about along with its competitors. The research should include the strengths and weaknesses of the selected company based on the stated learning outcomes of the course.
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