a
|
                Â
K = N |
|
Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]   Â
+Â Â Par value/(1 + YTM)^N |
|
                 Â
k=1 |
|
|
|
                Â
K =5 |
|
Bond Price =∑ [(10*1000/100)/(1 +
13/100)^k]Â Â Â Â +Â Â 1000/(1 +
13/100)^5 |
|
                 Â
k=1 |
|
|
|
Bond Price = 894.48 |
|
Discount rate |
0.13 |
|
|
|
|
|
|
Year |
0 |
1 |
2 |
3 |
4 |
5 |
|
Cash flow stream |
0 |
100 |
100 |
100 |
100 |
1100 |
|
Discounting factor |
1 |
1.13 |
1.2769 |
1.442897 |
1.6304736 |
1.842435 |
|
Discounted cash flows project |
0 |
88.49558 |
78.31467 |
69.30502 |
61.331873 |
597.0359 |
| Price= Sum
of discounted cash flows |
|
|
|
|
|
Bond price = |
894.48 |
|
|
|
|
|
|
Where |
|
|
|
|
|
|
|
Discounting factor = |
(1 +
discount rate)^(Corresponding period in years) |
|
|
Discounted Cashflow= |
Cash flow
stream/discounting factor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
b
|
Conversion option value = Value of conversion bond-value of
straight bond |
|
Conversion option value = 900-894.48 |
|
Conversion option value = 5.52 |
c
|
Conversion value = Conversion ratio*current share price |
|
Conversion value = 26.32*30 |
|
Conversion value = 789.6 |
d
Donot convert as conversion value is less than current price of
bond
