SIE Exam Question 881: Answer and Explanation

Question: 881

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 ratio of the bond is:

• A. 47.5:1.
• B. 50.0:1.
• C. 52.5:1.
• D. 55.5:1.

Correct Answer: B

Explanation:

Conversion ratio = Par value ÷ Underlying share price

Conversion ratio = $10,000 ÷ $200 = 50:1