Question: ABC. Your boss asks you to value a new 30-year convertible bond. The bonds coupon rate = 3.2% and is paid semi-annually. Face value of

ABC.

  1. Your boss asks you to value a new 30-year convertible bond. The bonds coupon rate = 3.2% and is paid semi-annually. Face value of the bond = $1,000. The conversion price is $58 and the stock sells for $39.
    1. What is the minimum value of the bond assuming the yield to maturity of a comparable straight (non-convertible) bond is 4.9%?

  1. What is the conversion premium?

  1. Assume you were holding the convertible bond and the stock price rose to above $58/share. Would you convert the bond into the stock or hold onto the bond?

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