- CFA Exams
- CFA Level I Exam
- Study Session 14. Fixed Income (1)
- Reading 42. Fixed-Income Securities: Defining Elements
- Subject 5. Bonds with Contingency Provisions
CFA Practice Question
Consider the following convertible bond:
Coupon rate: 6%
Conversion ratio: 20
Market price: 1050
Straight value: 980
Dividend yield: 4%.
Par value: $1,000
Coupon rate: 6%
Conversion ratio: 20
Market price: 1050
Straight value: 980
Underlying stock characteristics:
Current market price: $40 per share.
Dividend yield: 4%.
The conversion value of the bond is ______.
Correct Answer: $800
The conversion value is the value of the 20 stocks that the bond can be converted into: 20 x $40 = $800.
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