SIE Exam Question 456: Answer and Explanation

Question: 456

XYZ has 8% subordinated debentures trading in the market place at $120. They are convertible into XYZ common stock at $25 per share. What is the parity price of the common stock?

• A. 31.
• B. 30.
• C. 29.
• D. 28.

Correct Answer: B

Explanation:

B: The parity price is found by determining the number of shares that can be received upon conversion par / conversion price = 1,000 / 25 = 40 shares. Then the parity price equals the current market value of the convertible / no. of shares, 1,200 / 40 = $30.