The Lower Bound on the Market Price of a Convertible

question 57

Multiple Choice

The lower bound on the market price of a convertible bond is

• A)its straight-bond value.
• B)its crooked-bond value.
• C)its conversion value.
• D)its straight-bond value and its conversion value.

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Definitions:

Preferred Stock

A class of ownership in a corporation with a higher claim on its assets and earnings than common stock.

Par Value

A nominal or face value assigned to a share of stock by the company's charter, not necessarily reflecting its market value.

Yielding

The act of producing or generating an income or return from an investment over a specified period of time.

Constant Growth Model

A method to estimate the value of a stock by assuming a constant rate of dividend growth.