Lane Co has in issue 3% convertible loan notes which are redeemable in five years’ time at their nominal value of $100 per loan note. Alternatively, each loan note can be converted in five years’ time into 25 Lane Co ordinary shares.

The current share price of Lane Co is $3·60 per share and future share price growth is expected to be 5% per year.

The before-tax cost of debt of these loan notes is 10% and corporation tax is 30%.

What is the current market value of a Lane Co convertible loan note?

A. $82·71
B. $73·47
C. $67·26
D. $94·20