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Straight Bond Value $834.79 Conversion Option $325.49 Value of Convertible Bond $1,160.28

The convertible bond has a straight bond value of $834.79 and a conversion option value of $325.49, giving it a total value of $1,160.28. The inputs for valuing the straight bond portion include a face value of $1000, coupon rate of 5.75% paid semi-annually, time to maturity of 7.5 years, and interest rate of 9%. The conversion option was valued using a stock price of $32.50, annualized standard deviation of 50%, strike price of $15.91, time to expiration of 7.5 years, riskless rate of 5%, and annualized dividend yield of 3%.

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83 views6 pages

Straight Bond Value $834.79 Conversion Option $325.49 Value of Convertible Bond $1,160.28

The convertible bond has a straight bond value of $834.79 and a conversion option value of $325.49, giving it a total value of $1,160.28. The inputs for valuing the straight bond portion include a face value of $1000, coupon rate of 5.75% paid semi-annually, time to maturity of 7.5 years, and interest rate of 9%. The conversion option was valued using a stock price of $32.50, annualized standard deviation of 50%, strike price of $15.91, time to expiration of 7.5 years, riskless rate of 5%, and annualized dividend yield of 3%.

Uploaded by

nitin verma
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLS, PDF, TXT or read online on Scribd

Bond Value

Straight bond value = $834.79


Conversion option = $325.49
Value of convertible bond $1,160.28
Inputs for the straight bond
Face Value of Bond = 1000
Coupon Rate on Bond = 5.75%
Frequency of coupons = 2 (1: Annual; 2: Semi-annual; 4: Quarterly; 12: Monthly)
Time to Maturity = 7.5
Interest Rate on Bond = 9.00% (Should include default risk spread: Use T.Bond rate for similar maturity + de

PV of immediate coupons =
Price of Bond =  $           834.79 
te for similar maturity + default spread)
OPTION WORKSHEET: LONG TERM OPTIONS

VALUING A LONG TERM OPTION ­ WITH DIVIDEND ADJUSTMENT

This program calculates the value of a long term option (> 1 year)
adjusting for dividends using the expected dividend
yield on the current value of the asset.

Assumptions
1. All the assumptions underlying the Black­Scholes model apply
2. The dividend yield over the lifetime of the option is known and a constant.

The user has to input the following variables
1. Current market value of the underlying asset
2. Variance in the ln(value) of the underlying asset
3. Strike price of the option
4. Riskless interest rate that corresponds to the life of the option
5. Time to expiration on the option
6. Expected dividend yield on the underlying asset.
OPTION WORKSHEET: LONG TERM OPTIONS

Inputs relating the underlying asset
Enter the current stock price = $32.50  (in currency)

Entet the annualized standard deviation in ln(stock price) = 50% (in %)

Enter the current annualized dividends on the stock = $0.55  (in currency)


This will result in a dividend yield of 1.70%
Do you want to change this dividend yield for the life of the option Yes (Yes or No)
If yes, enter the new dividend yield for the life of the option = 3% (in %)

Inputs relating to the option
Enter the number of shares that you can convert a bond into = 25.32
Enter the strike price on the conversion option = $15.91  (in currency)

Enter the time to expiration on the option (in years 7.5 (in years)

General Inputs
Enter the riskless rate that corresponds to the option lifetime = 5.00% (in %)
OPTION WORKSHEET: LONG TERM OPTIONS

VALUING A LONG TERM OPTION/WARRANT


Stock Price= $32.50  T.Bond rate= 5.00%
Strike Price= $39.49  Variance= 0.25
Expiration (in years) = 7.5 Annualized dividend yield= 3.00%

d1 = 0.6518478346
N(d1) = 0.7427503301

d2 = ­0.7174585592
N(d2) = 0.2365455989

Value per call =  $12.85
Value of conversion option = $325.49

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