Assume that ABC Company successfully issues a 6% convertible bond, due 12 years from now at $1,000 per bond. The bond pays interest 2 times per year. Also, assume that the bond is convertible into 100 shares of stock anytime during the life of the bond. Assume the common stock of the company is selling for $8 per share at the time the convertible bond is issued. The last assumption is that if ABC Company issued a regular bond (not convertible), they would have to sell the bond with a 9% coupon instead of the 6% on the convertible.

Using the information above, calculate the minimum value for the convertible if:

(A) ABC common stock trades at $14 per share

(B) The stock trades at $6 per share

Answer rating: 100% (QA)

Convertible Bond Valuation ABC Company We need to consider two factors when valuing the convertible bond Bond Value This represents the value of the b... View the full answer