Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
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?
discuss some of the aspects of the transfer of training. What are the primary factors that play a role in the success of the process?
Discuss the use of language in a written report. Consider word choice, sentence structure, writing style and other writing components
Why might a business elect to dispose of its buildings in a sale and leaseback arrangement, even though it will continue to need the premises for an indefinite period? Why not keep the ownership of the property as an additional investment, thereby av..
What are the disadvantages and advantages of using primary data?
Compare and contrast between open and closed interview questions and provide examples of each
Suppose a manufacturer decides to use the Level strategy to plan its future production capacities. The estimate of the annual demand is 4800 units. The manufacturer plans to keep zero inventories both at the beginning and at the end of the year. What..
As an information systems manager, you will want to address these issues and maintain control providing rapid responses as often as needed. What types of networks have you used? What are some experiences you have had concerning the common threats lis..
Several years ago, a major automotive manufacturer was sued because the latch on a minivan’s rear door failed after the vehicle was hit from the side at 30 miles per hour. The plaintiff argued that the latch was of poor quality because it didn’t hold..
Would any global influence affect how a manager operate in another country? For example, how might you respond to the solicitation for guanxi in Chinga?
Assume you're CEO of Starbucks, what would you view as the most critical ethical risks that your company is facing in a recessionary economy? How would you prepare to address these risks?
List some important advantages and disadvantages of ‘standardization’ What is ‘modular’ design? What are its main advantages and disadvantages?
The Final Paper provides you with an opportunity to integrate and reflect on what you have learned during the class. The question to address is: "What have you learned about statistics?" In developing your responses, consider - at a minimum - and ..
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +1-415-670-9521
Phone: +1-415-670-9521
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd