The lower bound on the market price of a convertible bond is

Question

Quizplus · Accepted Answer

The lower bound of a convertible bond is determined by two values: its straight bond value and its conversion value. The straight bond value is the value of the bond if it were not convertible, and can be calculated using the bond's coupon rate, maturity date, and yield to maturity. The conversion value is the value that the bondholder would receive if they were to convert the bond into common shares. The market price of the convertible bond cannot fall below either of these values, so the lowest possible market price is determined by the higher of the two values: the straight bond value (A) and the conversion value (C). Therefore, the correct answer is D.

The Lower Bound on the Market Price of a Convertible