Suppose You Find Two Bonds Identical in All Respects Except

question 88

Multiple Choice

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. If bond A can be converted into 25 shares of stock, the investor would break even at the current prices.

• A) II only
• B) I and III only
• C) III only
• D) I, II, and III

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Definitions:

Resistance Training

A type of physical activity that involves working against a force or weight to increase muscle strength and endurance.

Metabolic Rate

The rate at which the body consumes energy or burns calories, pivotal in determining weight gain, loss, or maintenance.

Abdomen

The part of the body between the chest and pelvis, containing most of the digestive organs along with the kidneys and spleen.

Hips And Thighs

Body areas located at the upper part of the legs and around the pelvic region, known for commonly accumulating fat.