A convertible bond is selling for $800. It has 10 years to maturity, a $1000 face value, and a 10% coupon paid semi-annually. Similar nonconvertible bonds are priced to yield 14%. The conversion price is $50 per share. The stock currently sells for $31.375 per share. Determine the bond's option premium.
A._07,20 + 1000 PV_.07,20 = $788.12
Option Premium = 800 - 788.12 = $11.88

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The Answer of A convertible bond is selling for $800. It has 10 years to maturity, a $1000 face value, and a 10% coupon paid semi-annually. Similar nonconvertible bonds are priced to yield 14%. The conversion price is $50 per share. The stock currently sells for $31.375 per share. Determine the bond's option premium. A._07,20 + 1000 PV_.07,20 = $788.12 Option Premium = 800 - 788.12 = $11.88

A Convertible Bond Is Selling for $800