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Question - MammothDB, currently has assets with a market value of S100. Next year the market value of MammothDB's assets is going to increase by 50% or decrease by 50% depending on the state of the economy. The annual risk-free rate of interest is 0%. Mammoth DB has one share of common stock issued and outstanding as well as one zero-coupon corporate bond outstanding with a face value of S100. The corporate bond matures next year and is convertible into 19 shares of common stock at the discretion of the bondholders. The corporate bond has no callable or puttable features.
(a) Find today's value of MammothDB's corporate bond and common stock.
(b) Explain whether and when it is profitable for bondholders to convert their corporate bond.
(c) Now suppose that the corporate bond is convertible at the discretion of the issuer, ie MammothDB can choose whether and when to force bondholders to convert their bond. How would your answers to parts 4(a) and 4(b) change in this case?
Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..
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