For a convertible bond with a call provision, with respect to the bond's convertibility feature and the call feature, the Black-Scholes option model can apply to: A. only one feature. B. both features. C. neither features.
The Black-Scholes model applies to the convertibility feature just as it does to the common stock. The Black-Scholes model is not appropriate for the call feature because the volatility of the bond cannot be assumed constant.
