CFA Practice Question

There are 252 practice questions for this study session.

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 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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