Question #1
Reading: Reading 27 Valuation and Analysis of Bonds With Embedded Options - Anwers
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Question
Which of the following is equal to the value of a noncallable / nonputable convertible bond? The value of the corresponding:
Answer Choices:
A. callable bond plus the value of the call option on the stock
B. straight bond
C. straight bond plus the value of the call option on the stock. Explanation The value of a noncallable/nonputable convertible bond can be expressed as: Option-free convertible bond value = straight value + value of the call option on the stock. (Module 27.8, LOS 27.n)
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