Explanation:
Explanation: A callable convertible bond gives the issuer the right to call back the bond, which is a call option held by the issuer. This call option reduces the value of the bond from the investor's perspective.
Value Components:
Formula: Value of callable convertible bond = Straight bond value + Value of conversion option - Value of issuer call option
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The value of a callable convertible bond equals the value of the straight bond:
A
plus the value of the call option on the issuer's stock plus the value of the issuer call option.
B
plus the value of the call option on the issuer's stock minus the value of the issuer call option.
C
minus the value of the call option on the issuer's stock minus the value of the issuer call option.