Today is the morning of Jan 2, Year 5. XYZ Inc has exchange-listed convertible bonds outstanding....
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Today is the morning of Jan 2, Year 5. XYZ Inc has exchange-listed convertible bonds outstanding. The coupon rate is 7.75% with the coupon payable every six months. The yield is 6.49% compounded semi-annually. The maturity is on July 2, Year 14 (i.e. in 9.5 years), and the coupon is payable every January 2 and July 2. Each $1,000 face value convertible bond converts into 52 XYZ shares. The XYZ shares are currently trading at $20.90 per share. The delta of long-dated, at-the-money XYZ call options is 0.8 and is not expected to change with short-term changes in prices of the underlying. Comparable plain-vanilla (non-convertible) bonds with the same maturity, coupon, and credit risk are yielding 6.91%. What is the convertible bond's embedded call option value ($ value per option) at the current prices if each option represents a right to purchase one common share? Today is the morning of Jan 2, Year 5. XYZ Inc has exchange-listed convertible bonds outstanding. The coupon rate is 7.75% with the coupon payable every six months. The yield is 6.49% compounded semi-annually. The maturity is on July 2, Year 14 (i.e. in 9.5 years), and the coupon is payable every January 2 and July 2. Each $1,000 face value convertible bond converts into 52 XYZ shares. The XYZ shares are currently trading at $20.90 per share. The delta of long-dated, at-the-money XYZ call options is 0.8 and is not expected to change with short-term changes in prices of the underlying. Comparable plain-vanilla (non-convertible) bonds with the same maturity, coupon, and credit risk are yielding 6.91%. What is the convertible bond's embedded call option value ($ value per option) at the current prices if each option represents a right to purchase one common share?
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Answer rating: 100% (QA)
To calculate the embedded call option value of the convertible bond well follow the steps outlined Calculate the value of the comparable nonconvertibl... View the full answer
Related Book For
Advanced Financial Accounting An IFRS Standards Approach
ISBN: 9781285428765
4th Edition
Authors: Pearl Tan, Chu Yeong Lim, Ee Wen Kuah
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