A firm issues 7% convertible loan notes that are redeemable in 3 years’ time at a per- note nominal value of £100. Each loan note could alternatively be converted into 25 ordinary shares in 3 years’ time. The cost of debt is 9%. Assuming that the share price in 3 years’ time is £4.50 per share, what is the current market value of a convertible loan note? a. £103.21 b. £104.59 c. £94.94 d. £110.20
A firm issues 7% convertible loan notes that are redeemable in 3 years’ time at a per- note nominal value of £100. Each loan note could alternatively be converted into 25 ordinary shares in 3 years’ time. The cost of debt is 9%. Assuming that the share price in 3 years’ time is £4.50 per share, what is the current market value of a convertible loan note? a. £103.21 b. £104.59 c. £94.94 d. £110.20
Chapter6: Fixed-income Securities: Characteristics And Valuation
Section: Chapter Questions
Problem 16P
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A firm issues 7% convertible loan notes that are redeemable in 3 years’ time at a per- note nominal value of £100. Each loan note could alternatively be converted into 25 ordinary shares in 3 years’ time. The cost of debt is 9%. Assuming that the share price in 3 years’ time is £4.50 per share, what is the current market value of a convertible loan note?
a. £103.21 b. £104.59 c. £94.94 d. £110.20
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