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.Bond A can be converted into 25 shares of stock.
A) II only
B) I and III only
C) III only
D) I, II and III
Correct Answer:
Verified
Correct Answer:
Verified
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