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:

Condiments

Substances such as salt, pepper, mustard, and mayonnaise that are added to food to enhance flavor.

Mark-up

Extra pricing over the cost of goods aiming to take care of overheads and profit.

Mark-up

The sum added onto the purchase price of products to cover both overhead expenses and profit, establishing the retail price.

Markdown

A reduction in the regular selling price of a product or service.