The dollar amount of a convertible bond\'s par value that is exchangeable for on
ID: 2730678 • Letter: T
Question
The dollar amount of a convertible bond's par value that is exchangeable for one share of stock is the bond's __________. Select one: a. conversion premium b. straight bond value c. conversion value d. conversion price e. conversion ratio A firm has stock outstanding with a current price of $25 per share. The price in one period is expected to be either $30 or $35. A call option on ONE share is available with an exercise price of $20. If the risk-free rate of interest is 5%, what would you pay for the call option? Select one: a. $0.00 b. $5.00 c. $5.95 d. $6.90 e. $7.25
Explanation / Answer
Answer 1: d. conversion price
Answer 2: Current price-excerprice/(1+risk free return)
=25-20(1+.05)
=25-19.047
= 5.952
=5.95
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