NACVA CVA Exam - 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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Rasheeda

4 months ago

Nope, it should be $25, not $20.

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Melodie

4 months ago

So if stock goes up $1, bond value goes up $20, right?

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Stephanie

5 months ago

Wait, are you sure about that? Sounds off.

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Lorean

5 months ago

Totally agree, makes sense!

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Stevie

5 months ago

The bond converts to 20 shares at $50 each.

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Annamaria

5 months ago

I feel like it might be $50, but I’m not entirely confident. I need to double-check my notes on convertible bonds.

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Joaquin

5 months ago

If the bond converts into 20 shares, wouldn't that mean the bond value goes up by $20 for every $1 increase in stock price?

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Maryrose

5 months ago

I think I practiced a similar question where the bond value increased with the stock price, but I can't recall the exact multiplier.

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Shawna

5 months ago

I remember something about how convertible bonds work, but I'm not sure how to calculate the exact change in value.

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Ira

5 months ago

Alright, time to put my problem-solving skills to the test. I'll start by considering the basic requirements for Orders, then evaluate each option carefully. Gotta nail this one.

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Shoshana

5 months ago

Hmm, I'm a little unsure about this one. I know Approval Process and Workflow Rule are options, but I'm not sure how they would work for automatically creating a new opportunity. I'll need to think this through carefully.

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Sarina

11 months ago

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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Lawana

10 months ago

Well, looks like we'll have to stick to using cash for lunch instead.

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Madelyn

10 months ago

That's a bummer, I was hoping to treat myself to a nice meal.

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Ashley

10 months ago

No, you can't use the stock to buy lunch since it pays no dividend.

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Mireya

11 months 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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Ciara

9 months ago

User 4: I would go for option B as well. It seems like the most profitable choice.

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Shaun

9 months ago

User 3: I'm not sure, but I think it makes sense to go for the $50 increase.

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Jacquline

9 months ago

User 2: Yeah, I agree. It would definitely be beneficial to convert the bond at that point.

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Reuben

9 months ago

User 1: I think the answer is B too. $50 per share increase does sound like a good deal.

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Marshall

9 months ago

User 4: I think B makes more sense, $50 increase is a good deal.

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Carissa

9 months ago

User 3: I'm not sure, but I think it might be A) $25.

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Wilson

9 months ago

User 2: I agree, that does sound like a sweet deal.

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Regenia

9 months ago

User 1: I think the answer is B. $50 per share increase sounds good to me.

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Micheal

11 months 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

11 months 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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Juliann

10 months ago

That makes sense, so the answer would be C) $20.

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Juliann

10 months ago

I think you're right, it should increase by $20 if the stock price goes up by $1.

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Adell

11 months 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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