A Firm Has Outstanding Common Stock Valued at $42 a Share

question 14

Multiple Choice

A firm has outstanding common stock valued at $42 a share. The firm also has convertible bonds that have a $1,000 par value, a 9% semi-annual coupon, and a time to maturity of 16 years. The bonds have a conversion ratio of 23. Comparable, non-convertible bonds have a yield-to-maturity of 8.4%. What is the intrinsic value of this bond?

• A) $1,052.28
• B) $1,031.40
• C) $1,011.15
• D) $1,029.07
• E) $1,053.36

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