Convertible Bonds
You own a bond maturing in 10 years that has a $100 face value and a 6% coupon rate payable semi-annually. The yield to maturity on similar bonds is 5% compounded semi-annually. The bond is also convertible with a conversion ratio of 4.5. The stock is currently selling for $25.
a) What would be the value of the convertible bond if it were merely a straight bond without any conversion option?
b) What is the conversion value of the bond?
c) What is the minimum price of the convertible bond?
Please show your work as best as possible including formulas used,