Question #31
Reading: Reading 27 Valuation and Analysis of Bonds With Embedded Options - Anwers
PDF File: Reading 27 Valuation and Analysis of Bonds With Embedded Options - Anwers.pdf
Page: 13
Status: Unattempted
Question
A convertible bond has a conversion ratio of 12 and a straight value of $1,010. The market value of the bond is $1,055, and the market value of the stock is $75. What is the market conversion price and premium over straight value of the bond? Market conversion price Premium over straight value
Answer Choices:
A. $75.00 0.1029
B. $87.92 0.0446
C. $84.17 0.1222 Explanation The market conversion price is: (market price of the bond) / (conversion ratio) = $1,055 / 12 = $87.92. The premium over straight price is: (market price of bond) / (straight value) − 1 = ($1,055 / $1,010) − 1 = 0.0446. (Module 27.8, LOS 27.o)
No explanation available for this question.