YunJun, Inc. is contemplating to issue a 15-year convertible bond that would be priced at its $1,000 par value. The bonds would have a 9.00% annual coupon, and each bond could be converted into 25 shares of common stock. The required rate of return on an otherwise similar nonconvertible bond is 11.00%. The stock currently sells for $42.00 a share, has an expected dividend in the coming year of $2.10, and has an expected constant growth rate of 6.00%. What is the estimated floor price of the convertible at the end of Year 3?
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
YunJun, Inc. is contemplating to issue a 15-year convertible bond that would be priced at its $1,000 par value.
The bonds would have a 9.00% annual coupon, and each bond could be converted into 25 shares of common stock. The required rate of return on an otherwise similar nonconvertible bond is 11.00%. The stock currently sells for $42.00 a share, has an expected dividend in the coming year of $2.10, and has an expected constant growth rate of 6.00%. What is the estimated floor price of the convertible at the end of Year 3?
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