Which of the Following Is True

question 53

Multiple Choice

Which of the following is true?

• A) As the price of common stock increases,the market price of a convertible bond and the conversion premium increase.
• B) As the price of common stock increases,the market price of a convertible bond and the conversion value increase.
• C) As the price of common stock increases,the conversion value and the floor price increase.
• D) As the price of common stock increases,the market price of a convertible bond and the conversion premium decrease.

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Definitions:

CAPM

The Capital Asset Pricing Model, an investment theory that shows the relationship between the expected return of an investment and market risk.

Cost of Equity

The cost of equity represents the return a firm is expected to pay to its shareholders to compensate them for their investment risk.

DCF Model

DCF Model, or Discounted Cash Flow Model, is a valuation method used to estimate the value of an investment based on its expected future cash flows.

Risk Premium

The extra return expected by investors for taking on additional risk above the risk-free rate.