You know that the assets of a firm TRIP are today worth 100mil. There is only one share of equity outstanding. You reasonably feel that in a year they will be either worth 120mil or 80mil. You also know that a treasury bill maturing in one year is offering today a yield of 0%. The firm has a zero-coupon convertible bond that matures in one year and has a face value of 100mil. The bond is convertible into 11 shares of the common stock at maturity of the bond at the option of the bondholder.

What should be the value of this convertible corporate bond today?

Answer rating: 100% (QA)

To value the convertible corporate bond we need to consider the value of the bond as a straight bond without the conversion feature and the value of t... View the full answer