All else equal, which of the following features will increase the value of a convertible bond?
A)The risk-free interest rate is higher.
B)The conversion ratio is higher.
C)The conversion price is lower.
D)All of the features increase the value.

Question

Quizplus · Accepted Answer

All the listed features increase the value of a convertible bond. A higher risk-free interest rate increases the bond's value by increasing its coupon payments relative to the risk-free rate. A higher conversion ratio means the bondholder gets more shares per bond upon conversion, enhancing its value. A lower conversion price allows conversion into shares at a cheaper rate, also increasing the bond's attractiveness and value.

All Else Equal, Which of the Following Features Will Increase