A convertible bond has a 730 percent semi-annual coupon and


A convertible bond has a 7.30 percent, semi-annual coupon and a conversion rate of $31.25. The bond has a face value of $1,000 and matures in 11.5 years. The current yield to maturity for bonds of similiar risk is 6.2 percent, but due to the bond's convertible feature, it usually trades at a 5 percent premium over the non-convertible bond. Assume that you buy this bond today and sell or convert it to stock one year from now when the yield to maturity is 6.8 percent and the stock price is $38. What will be your turn on this investment, and indicate whether you sold the bond or converted it to stock? Please show work and formula used.

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Financial Management: A convertible bond has a 730 percent semi-annual coupon and
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