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ChemCom Inc. is considering issuing a 15-year convertible bond that would be priced at its $1,000 ...

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ChemCom Inc. is considering issuing a 15-year convertible bond that would be priced at its $1,000 ...

ChemCom Inc. is considering issuing a 15-year convertible bond that would be priced at its $1,000 par value. The bonds would have an 8% annual coupon, and each bond could be converted into 20 shares of common stock. The bonds would be callable in 10 years. The required rate of return on an otherwise similar nonconvertible bond is 6%. The stock currently sells for $40 a share, has an expected dividend in the coming year of $2, and has an expected constant growth rate of 5%. What is the IRR on the convertible bond in 10 years’ time?

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7.32%

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8.00%

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9.91%

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10.00%

Textbook

Financial Management: Theory and Practice

Edition: 4^th

Authors: Brigham, Ehrhardt, Gessaroli, Nason

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