Question

True of False?

1.A convertible bond is a corporate bond with a call option to buy the common stock of the issuer.  

2.The value of a corporate bond without the conversion option is called its straight value.

3.The price that an investor effectively pays for the common stock if the convertible bond is purchased and then converted into the common stock is called the Market Conversion Price.

4.The higher the premium over straight value, the less attractive the convertible bond.

5.If interest rates rise, the straight value falls, and the floor falls. The convertible bond becomes less attractive.

6The combined position of the convertible bond and the short position in the stock is said to be Delta Hedged, Delta Neutral, or Market Neutral.  

7.A key factor determining the price of a call option is the expected price volatility of the stock: the more the expected price volatility, the greater the value of the call option.

8.The theoretical value of a call option can be valued using the Black-Scholes option pricing model or the binomial option pricing model.  

Answer 1

1) The above statement is true.

2) The above statement is true.

3) The above statement is true.

4) The above statement is true.

5) The above statement is true.

6) The above statement is true.

7) The above statement is true.

8)The above statement is true.