What Is the Value of a Convertible Bond with a Conversion

question 121

Multiple Choice

What is the value of a convertible bond with a conversion ratio of 25, face value of $1,000, coupon of 10% and yield of 10 percent? Common stock of this firm is currently selling at $35.

• A)$875
• B)$1,000
• C)$1,125
• D)$1,875 Conversion value = 25 x 35 = $875
• Floor value of the par bond is $1,000

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Definitions:

Motivation

The psychological processes that arouse, direct, and maintain human behavior towards achieving a goal.

Emotion

A complex psychological state involving an individual's subjective experience, physiological response, and behavioral or expressive response.

Transcendence Need

A psychological term referring to the human desire to go beyond the self and have experiences with spiritual dimensions or universal truths.

Internal Locus

The belief that one has control over their life events and outcomes, as opposed to external forces having that control.