I have the following doubts for Reading 36, the CFAI curriculum example 9:
According to question 1, the conversion premium (CP) is par value of convertible bond/ conversion ratio. But according to the notes, market conversion premium (Mcp) is convertible bond price/ convertion ratio. So the CP differs from Mcp, yeah? If yes what’s the difference between the two?
Question 5: lower interest rates signify higher value of call option, so the the value of the convertible bond should decline based on my understanding, why does the answer stats that the value does not change significantly?
Question 6: I’d need someone to dumb the answer down for me.
Thank you!