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XY has in issue a 6% convertible bond which is redeemable at par or convertible...

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XY has in issue a 6% convertible bond which is redeemable at par or convertible into equity shares in one year's time.  The conversion terms are 20 equity shares for each $100 of convertible bond. The conversion value in one year's time is expected to be $105 per $100 nominal of the bond based on the current share price of $5.25.

Which of the following statements about the bond is correct?

A.

The yield to maturity of the convertible bond is a constant 6%.

B.

The bond will be converted into equity shares in one year's time if the share price does not change.

C.

XY's post tax cost of debt for the convertible bond will be higher than the yield to maturity.

D.

If the bond is redeemed rather than converted that means that the investor will receive $105 for each $100 of nominal value.

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