Business, 18.08.2020 22:01, cooltez100
Sweeney pies has issued a zero-coupon 10-year bond that can be converted into 10 Sweeney shares. Comparable straight bonds are yielding 9%. Sweeney stock is priced at $63 a share. (Assume a face value of $1,000 and semi-annual compounding).
A. Suppose that you had to make a now-or-never decision on whether to convert or to stay with the bond. Which would you do?
1. Convert the bond
2. Stay with the bond
B. If the convertible bond is priced at $476, how much are investors paying for the option to buy Sweeney shares?
C. If, after one year, the value of the conversion option is unchanged, what is the value of the convertible bond?
Answers: 3
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Sweeney pies has issued a zero-coupon 10-year bond that can be converted into 10 Sweeney shares. Com...
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