Answer:
$34.22
Explanation:
The computation is shown below:
Value of the stock = Next year dividend ÷ (Required rate of return - growth rate)
where,
Growth rate equal to
= {($0.76 ÷ $0.632)^1 ÷ 3} - 1
= 6.34%
And, Next year dividend would be
= $0.76 × (1 + 6.34%)
= $0.81
So, the value of the stock would equal to
= 0.81% ÷ (8.70% - 6.34%)
= $34.22
If the price of the common stock declines by 50 percent, the price of the convertible bond will also decline by the same percentage
If the stock price falls, the short seller profits by buying the stock at the lower price closing out the trade. Convertible bonds tend to offer a lower coupon rate or rate of return in exchange for the value of the option to convert the bond into common stock.
Thus, if the price of a convertible bond will move in tandem with the price of the common stock, so if the stock price declines, the convertible bond price will follow suit.
Hence, convertible bonds typically carry lower interest rates payments.
To learn more about convertible bond here:
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Answer:
Maximum initial cost would be $58,116,883.12
Explanation:
1,790,000 increased at 3%
Ke 0.119 + 0.02 = 0.139
ER 0.15
Kd(after-tax) Kd(1-t) = 0.047
DR 0.85
WACC 0.06080
Now that we have the rate, we calculate the present value using the gordon method
1,790,000 / (0.06080-0.03) = 58,116,883.12
C Ethan
because that is who u are refering to.
