Question: Convertible Debenture Valuation
Recently, Orillia Real Estate Development Corp. issued 6% Convertible Debentures with a face value of $1,000. The coupons are payable semi-annually and the debenture matures in 10 years. The conversion price of the debentures is $20 per share, giving a conversion rate of 50 shares per debenture ($1,000 / $20). Debentures without a conversion feature, but with the same level of risk are currently providing a yield to maturity of 8% compounded semi-annually. The shares are currently trading at $18. What is the minimum price at which the Orillia Real Estate Development Corp. convertible debentures should sell?