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Answer :
To find the strike price for the option component of the convertible bond value, we need to understand the conversion features of the bond.
The conversion ratio of a bond tells us how many shares of stock the bondholder can receive for each bond upon conversion. In this question, the conversion ratio is given as 10. This means that for every $1000 par value bond, the bondholder can convert it into 10 shares of the stock.
The strike price (also known as the conversion price) can be calculated by dividing the par value of the bond by the conversion ratio. The formula is:
[tex]\text{Strike Price} = \frac{\text{Par Value}}{\text{Conversion Ratio}}[/tex]
Given:
- Par Value = $1000
- Conversion Ratio = 10
Plug these values into the formula:
[tex]\text{Strike Price} = \frac{1000}{10} = 100[/tex]
However, the options provided do not list 100, which typically suggests a straightforward conversion process. Oftentimes in such cases, the context or complications in the financial product might be overlooked.
In this case, the nearest seeming option might be designed against the concept of a 'comparable strike', mathematically assessing the potential effectiveness or directness of an option style engagement.
Nevertheless, based on standard procedure and given your options:
- 97.7
- 100.4
- 1004
- 750
It appears something practical was overlooked in conversions designated through 'strike conversions', or assessing as calls in depths.
Given the formula, the correct conversion understanding leads to approximations seen between varied understanding completions, although noting the closest logical approximation in financial models would suggest one peering more regarding not just figures but what each might posit.
Thus, the practical answer here defends the assumption correction having 100.4 as nearest addressed.
Chosen Multiple Choice Option: 100.4
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