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

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?

Posted Date: 3/9/2013 5:14:54 AM | Location : United States







Related Discussions:- What is the straight value of the convertible bond, Assignment Help, Ask Question on What is the straight value of the convertible bond, Get Answer, Expert's Help, What is the straight value of the convertible bond Discussions

Write discussion on What is the straight value of the convertible bond
Your posts are moderated
Related Questions
You work for a company that sells expensive equipment to other companies. The marketing director has closed on a substantial sale (for your company) but the customer has requested

You observe the following statistics in the market. The stock of YUM! Brands Inc. (the holding company of KFC, Taco Bell and Pizza Hut among others) costs $66.24 today. Analysts es

Q. Show Quick and regular returns of the investments? Quick and regular returns of the investments: every investor wants a quick and regular returns on his investment sufficienc

(i) Calculate the unweighted average daily variance for the time series. Explain any assumptions or simplifications you have made, and the working for each step.

Determine the Measurement of Risk There are three methods: (1) Volatility: Volatility may be described as range of movement (or price fluctuation) from the expected lev

Explain how budget planning is related risk management

A former alumna of the University, who originated Racoon.com ((ticker: COON1), recently passed away. In her Will, she named X-University as the beneficiary of her assets, which was

Risk Management Many organization and investors engage in activities designed to manage the risks they face. In the corporate world the managers' search to control business ri

(i) Describe your notion of "marine biodiversity" with an appropriate illustration? (ii) Name the different levels at which marine biodiversity can be depicted in the marine en

what are the risk management in an asset register that is not updated on a timely basis