77 908
Assignments Done
Successfully Done
In August 2019

Answer to Question #15658 in Finance for noel

Question #15658
Valdes Enterprises is considering issuing a 10-year convertible bond that would be priced at its $1,000 par value. The bonds would have an 8.00% annual coupon, and each bond could be converted into 20 shares of common stock. The required rate of return on an otherwise similar nonconvertible bond is 10.00%. The stock currently sells for $40.00 a share, has an expected dividend in the coming year of $2.00, and has an expected constant growth rate of 5.00%. What is the estimated floor price of the convertible at the end of Year 3?
Expert's answer
Bond V = $80(PVIFA10%,7) + $1,000(PVIF10%,7) = $902.63.

Conversion V = 20($40)(1.05)
= $926.10.
The floor value is the greater of the bond value or the
conversion value. Thus, the floor value is $926.10.

Need a fast expert's response?

Submit order

and get a quick answer at the best price

for any assignment or question with DETAILED EXPLANATIONS!


No comments. Be first!

Leave a comment

Ask Your question

Privacy policy Terms and Conditions