A 10% semiannual coupon bond has 10 years to maturity when market rates on similar non-convertible bonds are 8.5%.It is convertible into 40 common shares and has a $1,000 par value.The shares are currently trading at $30.What is the floor value of the bond,assuming it pays semi-annual coupons?
A) $2,000
B) $1,100
C) $1,200
D) $1,000

Question

Quizplus · Accepted Answer

Floor value=max(straight bond value,CV)where CV=CR*market price
PMT = −50,N = 20,FV = -1,000,I/Y = 4.25%,compute PV = $1,099.71
CV=40*30=1,200
Floor value=1,200

A 10% Semiannual Coupon Bond Has 10 Years to Maturity