NUMERICAL QUESTION: Suppose that an investor is considering the purchase of a stock or aconvertible bond of COMPANY S. The stock of the company can be purchased at €20.The following information is for the convertible bond. The bond has a face value of €1,000, an annualcoupon rate of 4% (coupons are paid every six months) and a maturity of 3 years. Similar bonds areselling to yield 12% annually. The current market price of the convertible bond is €920. The Time left 1:11:10ratio is 45.1. What is the straight value of that bond?2. What is the minimum value of the convertible bond?3. Assume that the investor decided to purchase the convertible bond and that 2 months later, theprice of the stock fell to €16. What is the return to the investor from having bought the convertiblebond?Remember to input your answer without the % sign. For instance, ananswer equal to 1.52% should be entered as 1.52.

Straight Value of the Bond: The straight value (or intrinsic value) of a bond is the present value…

1. What is the straight value of that bond? 2. What is the minimum value of the convertible bond? 3. Assume that the investor decided to purchase the convertible bond and that 2 months later, the price of the stock fell to €16. What is the return to the investor from having bought the convertible bond? Remember to input your answer without the % sign. For instance, an answer equal to 1.52% should be entered as 1.52.

1. What is the straight value of that bond? 2. What is the minimum value of the convertible bond? 3. Assume that the investor decided to purchase the convertible bond and that 2 months later, the price of the stock fell to €16. What is the return to the investor from having bought the convertible bond? Remember to input your answer without the % sign. For instance, an answer equal to 1.52% should be entered as 1.52.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 9P

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