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Suppose you find two bonds identical in all respects except that Bond A is convertible to common stock and Bond B is not.Bond A is priced at $1,245 and Bond B is priced at $1,120.Bond A has a promised yield to maturity of 5.6% and Bond B has a promised yield to maturity of 6.7%.The stock of Bond A is trading at $49.80 per share.Which of the following statements is/are correct?
I.The value of the conversion option for Bond A is $125.
II.The lower promised yield to maturity of Bond A indicates that the bond is priced according to its straight debt value rather than its conversion value.
III.Bond A can be converted into 25 shares of stock.
Discount Rate
The interest rate used to discount future cash flows to their present value, often used in the calculation of net present value.
Terms of Sale
Conditions agreed upon by the buyer and seller regarding the delivery, payment, and other aspects of a transaction for goods or services.
Credit Policy Effects
Refers to the outcomes or changes in business performance and financial health resulting from adjustments to a company's credit terms and conditions offered to customers.
Cost Factor
A variable, condition, or aspect that determines the cost of an operation or activity, often expressed as a multiplier or percentage.
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