NACVA Exam CVA Topic 3 Question 68 Discussion

Actual exam question for NACVA's CVA exam

Question #: 68
Topic #: 3

[All CVA Questions]

If a $1000 per share value of convertible bond is issued for $1000, and is convertible into 20 shares of issuer's common stock that pays no dividend, there will be no economic benefit in converting the debt to stock as long as the common stock is selling for less than $50 per share. If the bond value is indeed in the equity-equivalent region, as the value of a single share of common stock increases $1, the bond value will increase:

A$25

B$50

C$20

D$10

Show Suggested Answer

Suggested Answer: D

by Raylene at Apr 25, 2023, 10:21 PM

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Sarina

Wait, if the stock pays no dividend, does that mean I can't use it to buy myself a nice lunch? This question is really making me hungry...

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Mireya

5 days ago

I'm not an expert, but I think the answer is B. After all, if I had a convertible bond, I'd want to make the most money possible, right? $50 per share increase sounds like a sweet deal to me!

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Micheal

7 days ago

I'm confused. Isn't the point of a convertible bond to take advantage of the stock price increase? This question is making my head spin!

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Mona

9 days ago

Hmm, interesting. I'm leaning towards C, as the bond value should only increase by $20 (1 share x $1 increase) if the stock price goes up by $1.

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Adell

14 days ago

I think the answer is B. If the bond is convertible into 20 shares, and each share is worth less than $50, then the bond value won't increase by more than $50 as the share price increases by $1.

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