Mikkleson Mining Stock Is Selling for $40 Per Share and Has

question 29

Multiple Choice

Mikkleson Mining stock is selling for $40 per share and has an expected dividend in the coming year of $2.00, and has an expected constant growth rate of 5.00%.The company is considering issuing a 10-year convertible bond that would be priced at its $1,000 par value.The bonds would have an 8.00% annual coupon, and each bond could be converted into 20 shares of common stock.The required rate of return on an otherwise similar nonconvertible bond is 10.00%.What is the estimated floor price of the convertible at the end of Year 3?

• A) $794.01
• B) $835.81
• C) $879.80
• D) $926.10
• E) $972.41

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