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Basic Question 1 of 10
An 8% 20-year convertible bond issued by Trading Inc. is trading at $1030. Each bond has a face value of $1000 and is convertible into 20 shares of Trading Inc., which are currently priced at $25 per share. The company is expected to pay annual dividends of $1.5 per share indefinitely. The risk-return characteristics of the convertible bond most likely resemble that of:
B. Trading Inc.'s common stock.
C. a hybrid instrument.
A. a busted convertible.
B. Trading Inc.'s common stock.
C. a hybrid instrument.
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I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes
Learning Outcome Statements
describe defining features of a convertible bond;
calculate and interpret the components of a convertible bond's value;
describe how a convertible bond is valued in an arbitrage-free framework;
compare the risk-return characteristics of a convertible bond with the risk-return characteristics of a straight bond and of the underlying common stock.
CFA® 2025 Level II Curriculum, Volume 4, Module 28.