Question: One year has passed and Ytels common equity price has increased to $51 per share. Also, over the year, the interest rate on Ytels nonconvertible

One year has passed and Ytel€™s common equity price has increased to $51 per share. Also, over the year, the interest rate on Ytel€™s nonconvertible bonds of the same has increased, while credit spreads remained unchanged. Name the two components of the convertible bond€™s value. Indicate whether the value of each component should increase, stay the same, or decrease in response to the increase on Ytel€™s common equity and the increase in interestrates.

Characteristic Par value Coupon (annual payment Current market price Straight bond value Conversion ratio Conversion option Dividend Expected market price in one year Convertible Bond Common Equity $1,000 4% $980 $925 25 At any time $35 per share $0 $1,125 $45 per share

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