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Sir in Hav co Qs , it states that A cash offer of $1·25 for each Strand Co share plus one $100 3% convertible bond for every $5 nominal value of Strand Co shares. In six years, the bond can be converted into 12 Hav Co shares or redeemed at nominal value.
My question is that why we have taken MV per bond as $100? Why we have not calculated the MV per bond?
Please tell me the date of the exam that this question was in. Sorry, but I cannot remember the name of every question 🙂
You are correct and strictly the answer should have calculated the MV per bond and used that (and if you had done that then you would still have got full marks).
However, to be fair to the examiner, he does go on to explain that the value of the bonds will likely increase and that it is likely therefore that the sellers will find the cash and bond offer the most acceptable.