CFA Practice Question

There are 252 practice questions for this study session.

CFA Practice Question

A 10-year, 8% coupon convertible bond is currently trading at 97.50. 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 premium per share of this bond?
A. $5.42 per share.
B. $6.76 per share.
C. $8.19 per share.
Explanation: Conversion ratio: 1000/57.14 = 17.5.Market conversion price = $975 per $1000 / 17.5 = $55.71. Market conversion permium = 55.71 - 48.95 = $6.76.

User Contributed Comments 2

User Comment
gregsob2 why is it not simply 57.14 - 48.95?
brissio the conversion price here is for a the bond at par. You need to adjust the conversion price to 975, which is 55.71. Never include the dividend.
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