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Basic Question 9 of 10
Consider the following convertible bond:
Coupon rate: 6%
Conversion ratio: 20
Market price: 1050
Straight value: 980
Dividend yield: 4%
B. Trading Inc.'s common stock.
C. a hybrid instrument.
Par value: $1,000
Coupon rate: 6%
Conversion ratio: 20
Market price: 1050
Straight value: 980
Underlying stock characteristics:
Current market price: $50 per share
Dividend yield: 4%
The risk-return characteristics of the convertible bond most likely resemble that of:
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.