Assume the current stock price is $100. Next period it can take a value of either 1.2
Question:
Assume the current stock price is $100. Next period it can take a value of either 1.2 or 0.8 times the stock price. If the return on $1 invested today for one period is 2%, then how much will a zero-coupon convertible bond (face value $1000) be worth today if the conversion ratio is 10? What are the parity value and premium on this bond? Compute the
(a) Price,
(b) Parity,
(c) Premium for the bond at the following levels of the stock price: 80, 90, 100, 110, and 120.
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Here the best way to solve this problem is to write a simple Octave program to compute the replicati...View the full answer
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