You have been hired to value a new 30-year callable, convertible bond. The bond has a coupon

Question:

You have been hired to value a new 30-year callable, convertible bond. The bond has a coupon rate of 3.2 percent, payable semiannually, and its face value is $1,000. The conversion price is $58, and the stock currently sells for $39.

a. What is the minimum value of the bond? Comparable nonconvertible bonds are priced to yield 4.9 percent.

b. What is the conversion premium for 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... Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...