Question #2
Reading: Reading 27 Valuation and Analysis of Bonds With Embedded Options - Anwers
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Question
Which of the following statements is most accurate concerning a convertible bond? A convertible bond's value depends:
Answer Choices:
A. only on changes in the market price of the stock
B. on both interest rate changes and changes in the market price of the stock
C. only on interest rate changes. Explanation The value of convertible bond includes the value of a straight bond plus an option giving the bondholder the right to buy the common stock of the issuer. Hence, interest rates affect the bond value and the underlying stock price affects the option value. (Module 27.8, LOS 27.n)
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