- 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
Assume that a convertible bond has a par value of $1,000. It is currently priced at $1,080. The underlying share price is $21 and the conversion ratio is 50:1. The conversion condition for this bond is ______.
A. parity
B. above parity
C. below parity
Explanation: The conversion value is 50 x $21 = $1,050. It is less than the market price of the bond.
User Contributed Comments 2
| User | Comment |
|---|---|
| alles | Isn't 1050 above parity? Yes, it's below the current price of the bond, but it's above parity ("Assume a convertible bond has a par value of $1,000"). |
| littlecow | parity means market value of the convertible bond. the conversion condition indicates if it's a good deal to convert or not - you compare it with the market value, not the par value. |