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LOS 36.p: Describe how a convertible bond is READING 36: VALUATION AND ANALYSIS: BONDS WITH EMBEDDED OPTIONS
valued in an arbitrage-free framework.
MODULE 36.8: CONVERTIBLE BONDS
Investing in a noncallable/non-putable convertible bond is like buying:
• an option-free bond, and
• a call option on an amount of the common stock equal to the conversion ratio.
convertible, noncallable bond value = straight value + value of call option on stock
