(b) HSU issued an annual coupon convertible bond with a coupon rate of 10% and...
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(b) HSU issued an annual coupon convertible bond with a coupon rate of 10% and a face value of $1,000. The bond will mature 2 years from today. The annual market interest rate is 10%. The conversion ratio is 40 shares. The current stock price is $35 per share. (i) Calculate the option value of the bond if each convertible bond is trading at $1,520. (Show your calculations). (5 marks) (ii) Explain the meaning of your answer in part (i) above
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