Floor price of the convertible
Not what you're looking for?
Florida Enterprises is considering issuing a 10-year convertible bond that will be priced at its $1,000 par value. The bonds have an 8.0 percent annual coupon rate, and each bond can be converted into 20 shares of common stock. The stock currently sells at $40 a share, has an expected dividend in the coming year of $5, and has an expected constant growth rate of 5.0 percent. What is the estimated floor price of the convertible at the end of Year 3 if the required rate of return on a similar straight-debt issue is 10.0 percent?
Purchase this Solution
Solution Summary
The solution explains how to calculate the floor price of the convertible security.
Solution Preview
We first find the price of the bod at the end of year 3. The price of a bond is the preent value of the interest and principal. The bond has an interest payment of $80 and a principal repayment of $1,000. ...
Purchase this Solution
Free BrainMass Quizzes
Social Media: Pinterest
This quiz introduces basic concepts of Pinterest social media
Accounting: Statement of Cash flows
This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.
Basic Social Media Concepts
The quiz will test your knowledge on basic social media concepts.
Learning Lean
This quiz will help you understand the basic concepts of Lean.
Situational Leadership
This quiz will help you better understand Situational Leadership and its theories.