Your next significant task as financial manager of the Alpha-Beta Group (ABG) is to price several types of bonds considering various market…

5 percent

A. If the market yield is 7 percent, what are the values of the three first bonds (assume a face value of $1,000)?

B. Why are the values of the bonds lower than their face value?

C. Why is the coupon rate for the convertible bond lower than that for the non-convertible coupon issue?

D. Given that the convertible bond is trading at $1,040, what is the value of the option to convert?

E. Suppose that the market yield rises to 7.5 percent. What are the bond values at that yield?

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