Today is the morning of Jan 2, Year 5. XYZ Inc has exchange-listed convertible bonds outstanding....

 

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Today is the morning of Jan 2, Year 5. XYZ Inc has exchange-listed convertible bonds outstanding. The coupon rate is 8.11% with the coupon payable every six months. The yield is 6.85% compounded semi-annually. The maturity is on July 2, Year 14 (i.e. in 9.5 years), and the coupon is payable every January 2 and July 2. Each $1,000 face value convertible bond converts into 55 XYZ shares. The XYZ shares are currently trading at $19.97 per share. The delta of long-dated, at-the-money XYZ call options is 0.8 and is not expected to change with short-term changes in prices of the underlying. Comparable plain-vanilla (non-convertible) bonds with the same maturity, coupon, and credit risk are yielding 7.27%. What is the revised expected price of one convertible bond today if the share price rises to $22.23 without any changes in bond yields? Today is the morning of Jan 2, Year 5. XYZ Inc has exchange-listed convertible bonds outstanding. The coupon rate is 8.11% with the coupon payable every six months. The yield is 6.85% compounded semi-annually. The maturity is on July 2, Year 14 (i.e. in 9.5 years), and the coupon is payable every January 2 and July 2. Each $1,000 face value convertible bond converts into 55 XYZ shares. The XYZ shares are currently trading at $19.97 per share. The delta of long-dated, at-the-money XYZ call options is 0.8 and is not expected to change with short-term changes in prices of the underlying. Comparable plain-vanilla (non-convertible) bonds with the same maturity, coupon, and credit risk are yielding 7.27%. What is the revised expected price of one convertible bond today if the share price rises to $22.23 without any changes in bond yields?

Answer rating: 100% (QA)

To calculate the revised expected price of one convertible bond today if the share price rises to 22... View the full answer