Question: Monte Inc. has a $1,000 face value convertible bond issue that is currently selling in the market for $950. Each bond is exchangeable at any

Monte Inc. has a $1,000 face value convertible bond issue that is currently selling in the market for $950. Each bond is exchangeable at any time for 25 shares of the companys stock. The convertible bond has a 7% coupon, paid semi-annually. Similar non-convertible bonds are yielding 9%. The bond matures in 10 years. Stock in Monte Inc. sells for $37 per share.

What is the straight bond value? The conversion value? What is the option (or premium) value of the bond?

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