An analyst has recently informed you that at the issuance of a company's convertible bonds, one of the two following sets of relationships existed:
Scenario A: Face Value of Bond: $1,000; Straight Value of Convertible Bond: $900; Market Value of Convertible Bond: $1,000
Scenario B: Face Value of Bond: $1,000; Straight Value of Convertible Bond: $950; Market Value of Convertible Bond: $900
Assume the bonds are available for immediate conversion. Which of the two scenarios do you believe is more likely? Why?© BrainMass Inc. brainmass.com June 3, 2020, 11:38 pm ad1c9bdddf
First, the straight value of a convertible bond is what the convertible bond would sell for if it could not be converted into common stock.
Second, therefore it is more likely that ...
The conversion of bonds are determined.