Chartered Financial Analyst Level 2

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Explanation:

Calculation:

Conversion value = Conversion ratio × Current stock price = 12 × $55 = $660
Straight bond value = $650
Minimum value of convertible bond = max(conversion value, straight bond value) = max($660, $650) = $660

Key Concept: The minimum value of a convertible bond is the greater of its conversion value and straight bond value. In this case, the conversion value ($660) is higher than the straight bond value ($650).

Explanation:

Calculation:

Conversion value = Conversion ratio × Current stock price = 12 × $55 = $660
Straight bond value = $650
Minimum value of convertible bond = max(conversion value, straight bond value) = max($660, $650) = $660

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An analyst gathers the following information about a convertible bond issue:

Stock price at issuance: `$60`

Current stock price: `$55`

Conversion ratio: 12 If the value of an otherwise identical option-free bond by the same issuer is `$650`, the minimum value of this convertible bond is:

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$650.

$660.

$720.

Chartered Financial Analyst Level 2

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An analyst gathers the following information about a convertible bond issue: Stock price at issuance: $60 Current stock price: $55 Conversion ratio: 12 If the value of an otherwise identical option-free bond by the same issuer is $650, the minimum value of this convertible bond is:

An analyst gathers the following information about a convertible bond issue:

Stock price at issuance: `$60`

Current stock price: `$55`

Conversion ratio: 12 If the value of an otherwise identical option-free bond by the same issuer is `$650`, the minimum value of this convertible bond is: