A Convertible Bond Is Selling for $993

question 34

Multiple Choice

A convertible bond is selling for $993.It has 15 years to maturity,$1,000 face value,and pays 8% coupon interest payments annually.Similar straight bonds (nonconvertible) are priced to yield 8.5%.The conversion ratio is 20.The stock is currently selling for $45.Calculate the convertible bond's option value.

• A)$34.52
• B)$93.00
• C)$7.00
• D)$58.48

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Definitions:

Union Draft

The system used during the American Civil War by the Union government to recruit soldiers into the military service through compulsory enrollment.

Hiring of Substitutes

The practice, particularly noted during the Civil War, where individuals who were drafted would pay others to serve in their place in the military.

Southern Offensive Operations

Military strategies or campaigns initiated by forces in the Southern part of a region or country, often referring to actions during wartime.

Fort Henry

A historical military fortification in Kingston, Ontario, Canada, originally built during the War of 1812 to protect the British-Canadian border from potential American attacks.