You have been hired to value a new 30-year callable, convertible bond. The bond

Question

You have been hired to value a new 30-year callable, convertible bond. The bond has a coupon rate of 5.4 percent, payable semiannually, and its face value is $1,000. The conversion price is $62, and the stock currently sells for $49.

What is the minimum value of the bond? Comparable nonconvertible bonds are priced to yield 6 percent. (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

What is the conversion premium for this bond? (Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

You have been hired to value a new 30-year callable, convertible bond. The bond has a coupon rate of 5.4 percent, payable semiannually, and its face value is $1,000. The conversion price is $62, and the stock currently sells for $49.

Explanation / Answer

Bond price required for calculation of conversion premium

Face value (FV) $                                         1,000 Coupon rate 5.40% Number of compounding periods per year 2 Interest per period (PMT) $                                               27 Number of years to maturity 30 Number of compounding periods till maturity (NPER) 60 Market rate of return/Required rate of return 6.00% Market rate of return/Required rate of return per period (RATE) 3.00% Minimum value of bond PV(RATE,NPER,PMT,FV)*-1 Minimum value of bond $                                       916.97

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