A Convertible Bond Has a Face Value of $1,000 and a Conversion

question 275

Multiple Choice

A convertible bond has a face value of $1,000 and a conversion price of $20. The bond has a 7 percent coupon and pays interest semi-annually. The bond matures in 8 years. Similar bonds are yielding 7.5 percent. The current price of the stock is $19.74. What is the straight bond value?

• A) $969.18
• B) $970.32
• C) $970.71
• D) $971.47
• E) $971.53

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Definitions:

Option Contract

A contract giving the buyer the right, but not the obligation, to buy or sell an asset at a specified price within a specific time frame.

Arabian Mare

A female horse of the Arabian breed, known for its endurance, speed, intelligence, and distinctively shaped head and high tail carriage.

Irrevocable

Something not capable of being changed or called back, often used in the context of trusts or certain decisions.

Payment

The act of giving money, goods, or other forms of value in exchange for products, services, or to fulfill a financial obligation.