CFA Level I · CFA Level I Exam · Equity Instrument Features
A company issues convertible preference shares with a par value of $100 and a conversion ratio of 4 common shares per preference share. The common shares trade at $22. The conversion value of one preference share is closest to:
The conversion value is the number of common shares received multiplied by the common share price: 4 × $22 = $88. This differs from the $100 par value, which is not the value of the conversion option.
- A$22
- B$88Correct
- C$100
Explanation
Conversion value = conversion ratio × market price of common = 4 × $22 = $88. Par value of $100 is the claim value, not the conversion value. $22 ignores the ratio.
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