CFA Level I · CFA Level I Exam · Fixed-Income Instrument Features
A corporate bond is convertible into the issuer's common shares at a conversion price of $25 per share. The bond has a par value of $1,000 and the shares currently trade at $30. The bond's conversion value is closest to:
The conversion value is about $1,200. The conversion ratio is $1,000 divided by $25, or 40 shares, and multiplying by the current share price of $30 gives $1,200, which is the value if the bond were converted into shares now.
- A$833
- B$1,000
- C$1,200Correct
Explanation
Conversion ratio = 1,000/25 = 40 shares. Conversion value = 40 × $30 = $1,200. The $833 figure results from dividing par by the share price and then multiplying by the conversion price, which inverts the ratio.
Did you get it right without looking?
One question tells you little. A timed set on Fixed-Income Instrument Features shows your real accuracy, how long you take and where you lose marks.
More Fixed-Income Instrument Features questions
- A 5-year bond has a par value of 1,000,000 and is partially amortizing, with annual payments that repay 150,000 of principal each year. The …
- A convertible bond has a par value of 1,000 and a conversion ratio of 25 shares. The bond trades at 1,150 and the shares trade at 40. The bo…
- A bond indenture includes a covenant that limits the issuer's ability to take on additional debt. This covenant is best described as:
- An investor holds a bond with a coupon rate of 5% that is currently trading at a market discount rate (yield) of 7% for similar-risk bonds. …
- A 5-year bond has a par value of EUR 1,000 and pays a 6% annual coupon in two equal semiannual payments. The amount of each coupon payment i…
- A bond issuer has the right to repurchase its bonds before maturity at a specified price. Relative to an otherwise identical option-free bon…