- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 28. Valuation and Analysis of Bonds with Embedded Options
- Subject 8. Valuation and Analysis of Convertible Bonds
CFA Practice Question
Consider the following convertible bond:
Coupon rate: 6%
Conversion ratio: 20
Market price: 1050
Straight value: 980
Dividend yield: 4%
B. Trading Inc.'s common stock.
C. a hybrid instrument.
Par value: $1,000
Coupon rate: 6%
Conversion ratio: 20
Market price: 1050
Straight value: 980
Underlying stock characteristics:
Current market price: $50 per share
Dividend yield: 4%
The risk-return characteristics of the convertible bond most likely resemble that of:
A. a busted convertible.
B. Trading Inc.'s common stock.
C. a hybrid instrument.
Correct Answer: C
Market conversion price = $1050/20 = $52.5, which is close to the current market price $50.
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