Question: A 10-year maturity convertible bond with a 6% coupon on a company with a bond rating of AAA is selling for $1,050. Each bond can

A 10-year maturity convertible bond with a 6% coupon on a company with a bond rating of AAA is selling for $1,050. Each bond can be exchanged for 20 shares, and the stock price currently is $50 per share. Other AAA-rated bonds with the same maturity would sell at a yield to maturity of 8%. What is the value of the bondholders' call option? Why is the bond selling for more than the value of the shares it can be converted into?

6.00% 10.00 years Coupon rate Maturity period Selling price of bond Stock price Yield to maturity Each bond can be exchanged for $1,050.00 S 50.00 per share 8.00% 20.00 shares

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