The Conversion Premium Is the Greatest and the Downside the Smallest

question 77

Multiple Choice

The conversion premium is the greatest and the downside the smallest when:

• A) the conversion value equals the pure bond value.
• B) the conversion value is greater than the pure bond value.
• C) the conversion value is less than the pure bond value.
• D) the share price is expected to go up drastically.

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Definitions:

NPV

Net Present Value is a financial metric that calculates the difference between the present value of cash inflows and outflows over a period of time for an investment.

Real Option Valuation

A technique in finance that calculates the value of future investment decisions, including the choices and flexibility in business projects.

Real Options

The value of additional decision-making opportunities available to a business when investing, likened to financial options.

Cash Flow

The amount of cash and cash equivalents being transferred into and out of a business, indicating its liquidity position.