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sweeney pies has issued a zero-coupon 11-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? multiple choice convert the bond stay with the bond b. if the convertible bond is priced at $475, how much are investors paying for the option to buy sweeney shares? (do not round intermediate calculations. round your answer to 2 decimal places.) c. if, after one year, the value of the conversion option is unchanged, what is the value of the convertible bond? (do not round intermediate calculations. round your answer to 2 decimal places.)

Respuesta :

anshumanaryan799

$510.88 is the value of the convertible bond.

a). Current price of the zero coupon bond = par value/(1+9%)^11 = 387.53

If a bond is converted then the converted value is the number of shares upon conversion*current share price = 10*63 = 630

Gain, if converted = 630-387.53 = $242.47

The decision should be to convert the bond.

b). Fair price of the bond = 387.53

Bond price = 476

Value of the option to buy the shares = 476-387.53 = $88.47

c). Fair price of the bond after one year = 1,000/(1+9%)^10 = 422.41

Value of convertible bond = fair price + value of conversion option = 422.41 + 88.47 = $510.88.

A convertible bond is a fixed-income commercial debt security that yields interest payments but can be converted into a destined number of common stock or equity shares. The conversion from the bond to stock can be done at certain times during the bond's life and is generally at the discretion of the bondholder.

Learn more about convertible bonds here: https://brainly.com/question/15183992

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