An 8% bond $100 has a current market value of $102.5. The bond covenant provides that 5 year from now, at redemption, 1-bond can be redeemed at 5% premium to its nominal value. The covenant also provides for conversion option, where the conversion ratio is 19 equity shares. The current market price per share is $5. Assuming a 4.5% annual growth in share price; determine the cost of debt, if the bond was: irredeemable Redeemable (and not convertible) Convertible

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter2: The Domestic And International Financial Marketplace
Section: Chapter Questions
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An 8% bond $100 has a current market value of $102.5. The bond covenant provides that 5 year from now, at redemption, 1-bond can be redeemed at 5% premium to its nominal value. The covenant also provides for conversion option, where the conversion ratio is 19 equity shares. The current market price per share is $5. Assuming a 4.5% annual growth in share price; determine the cost of debt, if the bond was: irredeemable Redeemable (and not convertible) Convertible

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