A. 1.37%
B. $1,280
C. $1.37
D. $200
✅ The correct answer is option D.
Rate of return on convertible bond = Value of conversion option to bond holder – Rate of return on non-convertible bond
= $740 – $540 = $200.
Rate of return on convertible bond = Value of conversion option to bond holder – Rate of return on non-convertible bond
= $740 – $540 = $200.