The conversion privilege of a convertible bond is not valued by the market.

Question

Quizplus · Accepted Answer

The conversion privilege is a valuable feature of a convertible bond and is factored into the market price of the bond. This is because the conversion privilege allows the bondholder to convert the bond into shares of the issuer's stock, potentially resulting in greater returns for the investor. The market will consider various factors such as the conversion ratio, the current stock price, and the time until maturity to determine the value of the conversion privilege.

The Conversion Privilege of a Convertible Bond Is Not Valued