Question: A firm issues 5% convertible loan notes that are redeemable in 4 years time at a per-note nominal value of 100. Each loan note could

A firm issues 5% convertible loan notes that are redeemable in 4 years time at a per-note nominal value of 100. Each loan note could alternatively be converted into 30 ordinary shares in 4 years time. The cost of debt is 7%. Assuming that the share price in 4 years time is 4 per share, what is the current market value of a convertible loan note?

a. 93.23

b. 108.48

c. 140.00

d. 106.81

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