Question: A firm has outstanding a bond with a 5 year maturity
A firm has outstanding a bond with a 5-year maturity and maturity value of $50, convertible into 10 shares. There are also 20 shares outstanding. What is the price of the warrant? The share price? Suppose you were to compute the value of the convertible as a risk-free bond plus an option, valued using the Black-Scholes formula and the share price you computed. How accurate is this?
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