A $1,000 5% annual coupon convertible bond is currently valued at $1,050. The discount rate is 5%. The conversion rate is 20. If the price of the common stock rises by $2, what is the amount of the change in the floor value of the bond?

Question

Quizplus · Accepted Answer

The floor value of the bond increases by $40 because for each share of stock, the price increases by $2, and with a conversion rate of 20, the total increase is $2 * 20 = $40.

A $1,000 5% Annual Coupon Convertible Bond Is Currently Valued