Tangshan Mining Company has an outstanding issue of convertible bonds with a $1,000 par value. The bonds have a 10 percent coupon rate, have a 10-year maturity, and are convertible into 100 shares of common stock. The yield to maturity on bonds of similar risk is 10 percent. Based on this information, the straight bond value of the bond is
A) $1,000.00.
B) $978.39.
C) $1,087.36.
D) none of the above.

Question

Quizplus · Accepted Answer

The straight bond value is the present value of the bond's cash flows (coupon payments and principal) discounted at the yield to maturity. Since the coupon rate equals the yield to maturity (10%), the bond's price equals its par value, which is $1,000.

Tangshan Mining Company Has an Outstanding Issue of Convertible Bonds