Luke Co has 8% convertible loan notes in issue which are redeemable in five years’ time at their nominal value of $100 per loan note. Alternatively, each loan note could be converted after five years into 70 equity shares with a nominal value of $1 each.

The equity shares of Luke Co are currently trading at $1·25 per share and this share price is expected to grow by 4% per year. The before-tax cost of debt of Luke Co is 10% and the after-tax cost of debt of Luke Co is 7%.

What is the current market value of each loan note to the nearest dollar?

A. $92
B. $96
C. $104
D. $109