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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:

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Suggested Answer: D

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

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Sarina
4 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
3 months ago
Well, looks like we'll have to stick to using cash for lunch instead.
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Madelyn
3 months ago
That's a bummer, I was hoping to treat myself to a nice meal.
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Ashley
3 months ago
No, you can't use the stock to buy lunch since it pays no dividend.
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Mireya
4 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
2 months ago
User 4: I would go for option B as well. It seems like the most profitable choice.
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Shaun
2 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
2 months ago
User 2: Yeah, I agree. It would definitely be beneficial to convert the bond at that point.
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Reuben
2 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
2 months ago
User 4: I think B makes more sense, $50 increase is a good deal.
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Carissa
2 months ago
User 3: I'm not sure, but I think it might be A) $25.
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Wilson
2 months ago
User 2: I agree, that does sound like a sweet deal.
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Regenia
3 months ago
User 1: I think the answer is B. $50 per share increase sounds good to me.
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Micheal
4 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
4 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
4 months ago
That makes sense, so the answer would be C) $20.
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Juliann
4 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
4 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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Jacki
4 months ago
I'm not sure, but I think the answer might be B) $50. Can someone explain the rationale behind the correct answer?
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Chery
4 months ago
I agree with Dottie, because for every $1 increase in stock value, the bond value will increase by $25.
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Dottie
4 months ago
I think the answer is A) $25.
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