Atlas Anglers Inc. is considering issuing a 16-year convertible bond that will be priced at its $1,000 par value. The bonds have a 7.5% annual coupon rate, and each bond can be converted into 21 shares of common stock. The stock currently sells at $38.00 a share, has an expected dividend in the coming year of $3.80, and has an expected constant growth rate of 5.9%. What is the estimated floor price of the convertible at the end of Year 3 if the required rate of return on a similar straight-debt issue is 9.8%? Do not round your intermediate calculations.
A. $947.74
B. $758.19
C. $1,184.68
D. $1,089.90
E. $852.97
Answer: A
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