SIE Exam Question 883: Answer and Explanation

Question: 883

A convertible bond is issued with a par value of $10,000. The bond is currently priced at $9,500, and the underlying share price is $200.

The conversion condition for the bond is:

• A. below parity.
• B. at parity.
• C. above parity.
• D. unknown.

Correct Answer: C

Explanation:

Because the current price of the convertible bond is $9,500, the conversion value is greater than the bond's price, or above parity.