Valdes Enterprises is considering issuing a 10-year convertible bond that would be priced at its $1,000 par value. The bonds would have a 7.1% annual coupon, and each bond could be converted into 31 shares of common stock. The required rate of return on an otherwise similar nonconvertible bond is 10.1%. The stock currently sells for $43.00 a share, has an expected dividend in the coming year of $2.80, and has an expected constant growth rate of 6.0%. What is the estimated floor price of the convertible at the end of Year 4? Do not round your intermediate calculations.
A. $1,514.59
B. $1,935.31
C. $2,103.60
D. $1,682.88
E. $1,767.03
Answer: D
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