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Question · Level 3

Dravane measures an unlisted convertible debt. Its model uses a risk premium estimated internally at 4%. Reasonably available market information (comparable debts recently issued) suggests that market participants would rather require 5.5%. The team hesitates between keeping 4%, using 5.5%, or launching an exhaustive study of all investors. Write a reasoned analysis of the approach to follow for the Level 3 input.

Your answer

Judgment question: compare your answer with the criteria and the model explanation.

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