Bubba buys a bond issued at par with a 5% coupon that is convertible into common stock at $40. What conversion ratio does Bubba determine?
Answer(s): C
25. The conversion ratio is how many shares of common stock Bubba obtains by converting. Divide the bond price - $1,000 for a single bond - by the $40 conversion price.
Bubba buys a bond issued at par with a 5% coupon that is convertible into common stock at $40. The bond increases in value by 20 points. What is the conversion parity of the stock?
$48. A 20-point increase results in a bond value of $1,200. Divide that by the conversion ratio of 25 shares to arrive at $48.
The most common type of bond issued by a well-established company is:
Answer(s): A
a debenture. Because of the company’s well-established financial condition, it issues a debenture that has no specific collateral and is only backed by the creditworthiness of the issuer.
A corporate bond is quoted as having a net change in value of plus one point. By how much did the bond price increase?
$10. A point is 1% and bonds are priced in $1,000 increments. Multiplying $1,000 by 1% equals $10.
A basis point is:
Answer(s): B
0.01%. A basis point is one-hundredth of a point. Since a point is 1%, a basis point is 0.01%. A bond price change of one basis point is ten cents ($1,000 x 0.01%).
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