Q. A company has issued 9% convertible bonds which are due to be redeemed in 5 years' time. They are currently quoted at $85 per $100 nominal. The bonds can be converted into 30 shares in 5 years'...

Q.

A company has issued 9% convertible bonds which are due to be redeemed in 5 years' time. They are

currently quoted at $85 per $100 nominal. The bonds can be converted into 30 shares in 5 years' time.

The share price is currently $4.00 and is expected to grow at a rate of 4% p.a. Assume a 35% rate of tax.

Calculate the cost of the convertible debt.