Question

15 With the development of modern option pricing methods, prior accounting standards setters would probably have...

15

With the development of modern option pricing methods, prior accounting standards setters would probably have reached the conclusion today that the conversion feature of convertible bonds:

Multiple Choice

  • does not lend itself to these option pricing models.

  • has value, but should be ignored.

  • has value.

  • has no value.

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Answer #1

Ans:

Option 3 . has Value

The accounting Standard setters has agreed that

Conversion feature of convertible bonds have value in both minded perspective by investor and issuer

For Investor it has more value, because When option of conversion is given to investor he would like to convert only when it has more value than current holding ,,it may in terms of dividends or market value as well

For issuer they can remove the burden of paying interest on time, And Burden on time completion of payment

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