Consider the following four bonds a If the market yield is
Consider the following four bonds:
a. If the market yield is 7 percent, what are the values of the three first bonds (assume a face value of $1,000)?
b. Why are the values of the bonds lower than their face values?
c. Why is the coupon rate for the convertible bond lower than that for the non convertible, coupon issue?
d. Given that the convertible bond is trading at $1,040, what is the value of the option to convert?
e. Suppose that the market yield rises to 7.5 percent. What are the bond values at that yield? Explain why the change in the value of the bonds is different.
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