FIN2014 Corporate Finance Case Study

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Assignment Details:-

• Course Code: FIN2014
• Course Title: Corporate Finance
• Referencing Styles: Not Selected
• Words: 1000
• University: Open University Malaysia
• Country: MY

 

Case Study Task:-

 

Tutorial Question 6 It is now 2020. Venom Inc. issued $10 million (face value) worth of convertible bonds in 2015. Each bond has the following features:

Face value $1,000 Coupon, annual $25 Conversion price $25 Current call price 105% of face value Current trading price 130% of face value Maturity 2021 Current stock price $30 per share Interest rate 10%.

1. What is the straight bond value of each Venom bond? What does this value mean?
2. What is the conversion value of each Venom bond? What does this value mean? What determines a bond’s conversion value?
3. Is the Venom bond selling above or below its conversion value? Why is this happening?
4. Should Venom call? Why or why not? What will happen if it does/does not?