A 10-year maturity convertible bond with a 6% coupon on a company with a bond rating of Aaa is selling for $1,050.Each bond can be exchanged for 20 shares,and the stock price currently is $50 per share.Other Aaa-rated bonds with the same maturity would sell at a yield to maturity of 8%.What is the value of the bondholders' call option? Why is the bond selling for more than the value of the shares it can be converted into?

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The Answer of A 10-year maturity convertible bond with a 6% coupon on a company with a bond rating of Aaa is selling for $1,050.Each bond can be exchanged for 20 shares,and the stock price currently is $50 per share.Other Aaa-rated bonds with the same maturity would sell at a yield to maturity of 8%.What is the value of the bondholders' call option? Why is the bond selling for more than the value of the shares it can be converted into?

A 10-Year Maturity Convertible Bond with a 6% Coupon on a Company