Kurt Owns a Convertible Bond That Matures in Three Years

question 144

Multiple Choice

Kurt owns a convertible bond that matures in three years. The bond has an 8 percent coupon and pays interest annually. The face value of the bond is $1,000 and the conversion price is $16.67. Similar bonds have a market return of 9 percent. The current price of the stock is $17.50. What is the conversion value of this bond?

• A) $952.57
• B) $974.69
• C) $1,038.30
• D) $1,049.79
• E) $1,144.27

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Definitions:

Straight-line Method

A method of calculating depreciation for an asset, spreading the cost evenly over its useful life.

Salvage Value

The calculated remaining value of an asset at the close of its productive life.

Depreciation Expense

An accounting method of allocated the cost of a tangible or physical asset over its useful life, representing how much of the asset's value has been used up.

Total Asset Turnover

A measure assessing the productivity of a company's assets in producing sales revenue.