What is the conversion ratio on the bond

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Reference no: EM13971144

1. Shares in the Marrero Corporation are trading at $25. In one year, the per share price could be $20 or $30. One year to maturity T-bills are paying 10 per cent.

a. What is the value of the call option with a $20 exercise price?

b. What is the value of the call option with a $26 price?

2. Estelle, Inc. convertible bond issue is selling on the market at $950. Each bond can be converted to 100 shares of the company at the option of the bond holder. The bond is burdened with a 7 per cent annual coupon with a 10 year maturity. The debt is BBB rated. Furthermore, the debt with BBB rating is priced to yield 12 per cent. Currently the shares in Estelle are trading at $7. With respect to the Estelle's bond,

what is:

a. the conversion ratio on the bond

b. conversion price

c. conversion premium

d. floor value and

e. value of the option?

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The solution has been completed in word document, In the said assignment I had to calculate the value of call and put option.

Reference no: EM13971144

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