What are boundary conditions for the price of convertible

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Reference no: EM131239485

A company has issued a 3-year convertible bond that has a face value of $25 and can be exchanged for two of the company's shares at any time. The company can call the issue, forcing conversion, when the share price is greater than or equal to $18.

Assuming that the company will force conversion at the earliest opportunity, what are the boundary conditions for the price of the convertible? Describe how you would use finite difference methods to value the convertible assuming constant interest rates. Assume there is no risk of the company defaulting.

Reference no: EM131239485

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