Explanation:
Calculation:
$37.20 = $930$952.65$930, $952.65) = $952.65Since the convertible bond is selling for $948.72, which is less than its minimum value of $952.65, it is undervalued.
Key Concept: The minimum value of a convertible bond is the greater of its straight bond value and conversion value.
Ultimate access to all questions.
A convertible bond with a conversion rate of 25 is selling for $948.72. The price of the issuer's otherwise identical option-free bond is $952.65 and the underlying share price is $37.20. The convertible bond is:
A
undervalued.
B
fairly valued.
C
overvalued.
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