A Convertible Bond

question 428

Multiple Choice

A convertible bond:

• A) Is a combination of a loan and a put option.
• B) Normally has a perpetual conversion feature.
• C) Has a value which is equal to its straight bond value plus it conversion value.
• D) Has a minimum value which is equal to the greater of the two floor values.
• E) Is worth an amount equal to the greater of the straight bond value or the conversion value plus the option to abandon value.

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Definitions:

Interest Rate

The percentage of a loan charged to the borrower as interest, usually shown as an annual rate of the outstanding loan amount.

Utility Function

A mathematical representation in economics of a consumer's preference ordering over a set of goods and services.

Consumption

The process by which goods and services are used up or consumed by individuals or groups.

Income

The monetary payment received for labor, services, or investment, constituting the financial resource individuals, businesses, or governments use for spending and saving.