The payoff function for the holder of straight debt looks like that for the seller of a

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The payoff function for the holder of straight debt looks like that for the seller of a put option. Convertible debt is straight debt plus a call option on a firm’s stock. How does the addition of a call option to straight debt affect the concern that lenders have about the asset substitution problem, and why?

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Fundamentals of corporate finance

ISBN: 978-0470876442

2nd Edition

Authors: Robert Parrino, David S. Kidwell, Thomas W. Bates

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