Assume the current stock price is $100. Next period it can take a value of either 130
Question:
Assume the current stock price is $100. Next period it can take a value of either 130 or 90. If the return on $1 invested today for one period is 5%, then how much will a 6% coupon convertible bond be worth today if the conversion ratio is 1? Can you construct an arbitrage in this situation that delivers risk-free profit if the CB is trading at $105?
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Mehwish Aziz
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