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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 passed! I did not get a chance to tell you before the exam - but your site was excellent. I will definitely take it next year for Level II.
Tamara Schultz
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.