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Kurt owns a convertible bond that matures in three years. The bond has an 8 percent...

Kurt owns a convertible bond that matures in three years. The bond has an 8 percent coupon and pays interest semi-annually. The face value of the bond is $1,000 and the conversion price is $25. Similar bonds have a market return of 9.25 percent. The current price of the stock is $26.50 per share. What is the straight bond value

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Answer #1

semiannual interest = 1000* .08*6/12 = 40

semiannual months = 3*2=6

semiannual yield = 9.25*612 = 4.625%

straight value of bond =[PVA 4.625%,6 *Interest ]+ [PVF 4.625%,6*Face value]

      =[5.13713*40]+ [.76241*1000]

         = 205.49+ 762.41

          = $ 967.90

**find present value annuity factor and present value factor using financial calculator or from there table respectively.

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