The minimum price of a convertible bond is
A) min (Bond Value, Conversion Value).
B) max (Bond Value, Conversion Value).
C) min (Stock Value, Conversion Value).
D) max (Stock Value, Conversion Value).
E) None of these are correct.

Question

Quizplus · Accepted Answer

The minimum price of a convertible bond is the greater of its bond value or its conversion value, hence the correct answer is "max (Bond Value, Conversion Value)." This ensures that the price of the convertible bond is at least equal to its value as a regular bond or its value if converted into the underlying stock.

The Minimum Price of a Convertible Bond Is