What Is the Minimum Value of the Call Option on a Convertible

question 47

Multiple Choice

What is the minimum value of the call option on a convertible bond (with face value of $1,000) with a conversion ratio of 30 if the bond offers a 9% coupon, has 10 years until maturity, and market interest rates are 9% for comparable bonds? The stock is currently priced at $35.

• A) $0
• B) $5
• C) $50
• D)$65

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Definitions:

Circular Elements

Components or parts of a design characterized by their round shape, important in various engineering and architectural constructs.

Circular Runout

A geometric dimensioning and tolerancing (GD&T) term that refers to the variation of a feature's surface as it is rotated around a datum axis.

Total Runout

The maximum allowable variation in the shape and location of a feature when measured around the entire surface.

Tolerance

The permissible limit or variation in dimensions, typically expressed in plus or minus values, indicating how much deviation from a standard is acceptable.