You have been hired to value a new 20-year callable, convertible bond. The bond has a 5.8

Question:

You have been hired to value a new 20-year callable, convertible bond. The bond has a 5.8 percent coupon rate, payable annually. The conversion price is $150, and the stock currently sells for $32.20. The stock price is expected to grow at 12 percent per year. The bond is callable at $1,150; but based on prior experience, it won’t be called unless the conversion value is $1,250. The required return on this bond is 9 percent. What value would you assign to this bond?

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...