A convertible bond has a $1,000 par value, a 6 percent, semi-annual coupon, and a time to maturity of 12 years. The bond has a conversion ratio of 20. Comparable, non-convertible bonds have a yield to maturity of 6.8 percent. What is the intrinsic value of this bond?

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The intrinsic value of a convertible bond is the sum of its value as a straight bond and its value as a conversion option. The value of the bond as a straight bond is the present value of its future cash flows, which can be calculated using the following formula:PV = C * [1 - (1 + r)^-n] / r + F * (1 + r)^-nwhere:PV is the present value of the bondC is the semi-annual coupon paymentr is the semi-annual yield to maturityn is the number of semi-annual periods to maturityF is the face value of the bondIn this case, the semi-annual coupon payment is $30 (6% of $1,000 / 2), the semi-annual yield to maturity is 3.4% (6.8% / 2), the number of semi-annual periods to maturity is 24 (12 years * 2), and the face value of the bond is $1,000. Plugging these values into the formula, we get:PV = $30 * [1 - (1 + 0.034)^-24] / 0.034 + $1,000 * (1 + 0.034)^-24= $30 * 17.888 + $1,000 * 0.553= $935.09The value of the bond as a conversion option is the value of the shares of common stock that can be obtained by converting the bond. In this case, the conversion ratio is 20, which means that each bond can be converted into 20 shares of common stock. The value of the shares of common stock is not given, so we cannot calculate the value of the bond as a conversion option.However, we can say that the intrinsic value of the bond is at least $935.09, which is the value of the bond as a straight bond.

A Convertible Bond Has a $1,000 Par Value, a 6