Asked by Taylor Fujimoto on Jul 13, 2024
Verified
The value a convertible bond would have if it could not be converted into common stock is called the __________________.
A) Conversion premium.
B) Straight bond value.
C) Conversion value.
D) Conversion price.
E) Conversion ratio.
Straight Bond Value
The present value of future cash flows, such as interest payments and the return of principal, from a bond with no embedded options.
Convertible Bond
This bond offers the option to be exchanged for a set amount of the company's shares at various points during its term, often at the preference of the individual holding the bond.
- Master the basics and effects of convertible bonds, highlighting their specifications and method of valuation.
- Discern between the innate value and the time-related value of options, and realize their contribution towards the complete value of an option.
Verified Answer
JJ
Jaime JorgeJul 18, 2024
Final Answer :
B
Explanation :
The value a convertible bond would have if it could not be converted into common stock is called the straight bond value. This value is based on the bond's interest payments and principal repayment, ignoring the potential additional value from conversion into equity.
Learning Objectives
- Master the basics and effects of convertible bonds, highlighting their specifications and method of valuation.
- Discern between the innate value and the time-related value of options, and realize their contribution towards the complete value of an option.