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Homework answers / question archive / A convertible bond has $1,000 par, pays 4
A convertible bond has $1,000 par, pays 4.5% annual coupon, matures in 2 years, and is convertible from now through maturity. Conversion ratio is 51. The convertible bond is trading at $1,095.16 today. What is the premium over straight value of this convertible bond? Assume the yield on a comparable non-convertible bond is 2%, and annual compounding. Round your answer to 4 decimal places. For example if your answer is 3.205%, then please write down 0.0321.