A firm issues 4% convertible loan notes that are redeemable in 4 years’ time at a per-note nominal value of £100. Each loan note could alternatively be converted into 15 ordinary shares in 4 years’ time. The cost of debt is 6%. The current share price is £6.20 per share, and future share price growth is expected to be 4% per year. What is the current market value of a convertible loan note to two decimal places?

A firm issues 4% convertible loan notes that are redeemable in 4 years’ time at a per-note nominal value of £100. Each loan note could alternatively be converted into 15 ordinary shares in 4 years’ time. The cost of debt is 6%. The current share price is £6.20 per share, and future share price growth is expected to be 4% per year. What is the current market value of a convertible loan note to two decimal places?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 8P

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