- CFA Exams
- CFA Level I Exam
- Study Session 13. Fixed Income (2)
- Reading 34. Valuation and Analysis of Bonds with Embedded Options
- Subject 8. Valuation and Analysis of Convertible Bonds

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**CFA Practice Question**

A 10-year, 8% coupon, $1000 par value convertible bond is currently trading at $975. The conversion price of the bond is $57.14. The underlying common stock of the same issuer is currently paying a dividend of $1.65 and is priced at $48.95. Which of the following would best estimate the market conversion price of this bond?

A. $50.60 per share.

B. $53.85 per share.

C. $55.71 per share.

**Explanation:**Conversion ratio: 1000/57.14 = 17.5.Market conversion price: 975/17.5 = 55.71 per share.

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**User Contributed Comments**
5

User |
Comment |
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Allen88 |
I thought of it this way. If the market price of the bond were trading at $1000 (par) then the conversion price would be $57.14. The market price of the bond is 975, so the conversion price should trade at (975/1000) * $57.14. Doing it this way is mathematically equivalent to the answer provided above but it may be easier to interpret. |

Paulvw |
Good way to remember, Allen. |

soorajiyer |
Thanks Allen88, makes it much easier! |

Mikehuynh |
Brilliant Allen88 |

brave1986 |
The Market conversion price for me is simply what you would assuming you converted the bond at its market price |