A 12% coupon convertible bond has 20 years to maturity.Market rates on similar non-convertible bonds are 9.25%.Each bond is convertible into 20 common.The shares are currently trading at $40.What is the straight bond value, assuming annual coupon payments?

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The straight bond value is calculated by discounting the bond's cash flows (annual coupon payments and principal at maturity) at the market rate for similar non-convertible bonds (9.25%). The annual coupon payment is $120 (12% of $1,000), and the bond's face value is $1,000. Using the present value formula for annuities and lump sums, the straight bond value is approximately $1,247.

A 12% Coupon Convertible Bond Has 20 Years to Maturity