CFA Practice Question

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CFA Practice Question

Consider the following convertible bond:

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 market conversion premium per share is:
A. $2.5
B. $3
C. $4.5
Explanation: Market conversion price = $1050/20 = $52.5
Market conversion premium per share = $52.5 - 50 = $2.5

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