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

question 387

Multiple Choice

A convertible bond has a face value of $1,000 and a conversion price of $35. The bond has a 9 percent coupon and pays interest semi-annually. The bond matures in 7 years. Similar bonds are
Yielding 8.5 percent. The current price of the stock is $36.30. What is the conversion value of this
Bond?

• A) $989.16
• B) $1,000.00
• C) $1,025.98
• D) $1,037.14
• E) $1,041.07

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Definitions:

Payback Period

The length of time it takes for an investment to generate enough cash flow to recover its initial cost.

Present Values

Present Values represent the current value of a future amount of money or stream of cash flows given a specified rate of return.

Capital Projects

Long-term investment projects undertaken by a business or organization to build, add, or improve on their capital assets.

Mutually Exclusive

Refers to a situation where the selection of one option automatically excludes the possibility of choosing any other option.