Problematlas anglers inc is considering issuing a 15-year, Ask an Expert

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Problem:

Atlas Anglers Inc. is considering issuing a 15-year convertible bond that will be priced at its $1,000 par value. The bonds have a 6.5% annual coupon rate, and each bond can be converted into 20 shares of common stock. The stock currently sells at $30 a share, has an expected dividend in the coming year of $3, and has an expected constant growth rate of 5.5%.

Required:

Question: What is the estimated floor price of the convertible at the end of Year 3 if the required rate of return on a similar straight-debt issue is 9.5%?

a. $960.84

b. $915.08

c. $790.48

d. $830.01

e. $871.51

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