Q. Consider two 10-year bonds, one that contains no embedded options and the other that gives its owner the right to convert the bond to a fixed number of shares of the issuer’s common stock. The convertibility option in the second bond cannot be exercised for five years. The bonds are otherwise identical. Compared with the yield on the convertible bond, the yield on the option-free bond is most likely:
- the same.
- lower.
- higher.
Solution
C is correct. The convertibility option provides a benefit to the investor, who will accept a lower yield on the convertible bond compared with the option-free bond.
A is incorrect because the yield on the option-free bond will be higher.
B is incorrect because the yield on the option-free bond will be higher.
老师，这道题的原版书解析，The convertibility option provides a benefit to the investor这句话很迷惑。不应该是更benefit发行人吗？您看看我理解对了没有，bondholder就是investor也就是lender，issuer就是borrower。对的吧？
谢谢！
