SIE Exam Question 505: Answer and Explanation

Question: 505

An ABC corporate bond is quoted at 110 and is convertible into ABC common at 20 per share parity. Price for the stock is:

• A. 24.
• B. 23.
• C. 22.
• D. 21.

Correct Answer: C

Explanation:

C: The parity price of the stock is found by using the following formulas: no. of shares = PAR / CVP, 1,000 / 20 = 50, parity price = CMV of bond / no. of shares = 1,100 / 50 = 22.