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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:

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Suggested Answer: D

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

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Rasheeda
6 months ago
Nope, it should be $25, not $20.
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Melodie
6 months ago
So if stock goes up $1, bond value goes up $20, right?
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Stephanie
6 months ago
Wait, are you sure about that? Sounds off.
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Lorean
6 months ago
Totally agree, makes sense!
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Stevie
6 months ago
The bond converts to 20 shares at $50 each.
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Annamaria
7 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
7 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
7 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
7 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
7 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
7 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
1 year 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
12 months ago
Well, looks like we'll have to stick to using cash for lunch instead.
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Madelyn
12 months ago
That's a bummer, I was hoping to treat myself to a nice meal.
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Ashley
12 months ago
No, you can't use the stock to buy lunch since it pays no dividend.
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Mireya
1 year 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
10 months ago
User 4: I would go for option B as well. It seems like the most profitable choice.
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Shaun
10 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
10 months ago
User 2: Yeah, I agree. It would definitely be beneficial to convert the bond at that point.
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Reuben
10 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
10 months ago
User 4: I think B makes more sense, $50 increase is a good deal.
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Carissa
11 months ago
User 3: I'm not sure, but I think it might be A) $25.
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Wilson
11 months ago
User 2: I agree, that does sound like a sweet deal.
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Regenia
11 months ago
User 1: I think the answer is B. $50 per share increase sounds good to me.
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Micheal
1 year 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
1 year 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
12 months ago
That makes sense, so the answer would be C) $20.
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Juliann
12 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
1 year 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
1 year 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
1 year 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
1 year ago
I think the answer is A) $25.
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