Why Should a Convertible Bond Always Be Valued at More

question 86

Multiple Choice

Why should a convertible bond always be valued at more than its bond value or its conversion value up until maturity?

• A) The bond holder is receiving higher interest rates.
• B) The conversion value does not have an upper bound.
• C) The conversion ratio may be decreased.
• D)The bond does not have to be given up to exercise the option.

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Definitions:

Output

Output refers to the total amount of goods and services produced by a country, company, or economic system.

Average Total Cost

Is calculated by dividing total cost by the quantity of output produced, reflecting the per-unit cost of production.

Variable Cost

Costs that vary directly with the level of production or output.

Fixed Cost

Expenses that do not change with the level of production or sales, such as rent, salaries, and insurance.