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
explain LIBOR

Define the Regulation Risk - Non-Systematic Risk Some  investments  can  be  comparatively attractive  to  other investments  due to certain  regulations  or  tax  laws  which

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

Question: The government of a certain country aims at ‘expanding the domestic and international markets for poultry products produced in the country'. The plan is to incr

Michael went deer hunting with Ed. After seeing bushes move, Michael quickly fired his rifle at what he thought was a deer. However, Ed caused the move- ment in the bushes and was

Question : Safety World Ltd is a new company that employs 110 people and provides contracting carpentry services to several organisations throughout the country. Some employe

Sibling Incorporated has a beta of 1.0. If the expected return on the market is 12%, what is the expected return on Sibling Incorporated''s stock? Answer 12% 14% 10% ca

Explain the meaning of risk management to an organisation Concept of risk: • What is risk? • Risk and decision making • Types of strategic risk • Six steps to managing strate

Political risk analysis is conducted by a company considering international operations and normally focuses on the  political and cultural differences between the home and targ

Question 1: (a) What are Upper Limb Disorders? (b) Describe seven main factors that are likely to increase the risk of upper limb disorders at work and suggest ways for redu