A 10 per cent convertible bond can be converted in four years time into 25 ordinary shares

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A 10 per cent convertible bond can be converted in four years’ time into 25 ordinary shares or redeemed at nominal value of £100 on the same date. The return required on the bond is 11 per cent. The current ex dividend market price of the underlying share is £3.35, and this is expected to grow by 5 per cent per year.

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