You have been hired to value a new 30-year callable, convertible bond. The bond has a 7.5

Question:

You have been hired to value a new 30-year callable, convertible bond. The bond has a 7.5 percent coupon, payable annually, and its face value is $100. The conversion price is $5.5 and the stock currently sells for $4.2.

a. What is the minimum value of the bond? Comparable nonconvertible bonds are priced to yield 9 percent.

b. What is the conversion premium for this bond?

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...