Study Question of the Month – November

This month’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 6, 7, 62, 79, and 82. –ANSWER POSTED– Continue reading

This month’s study question from the Solomon Online Exam Simulator question database is now available.

 Study Question

Question (Relevant to the Series 6Series 7Series 62, Series 79 and Series 82): 

As the price of the underlying stock of a convertible debenture goes up:

I. The parity value of the bond increases.
II. The current yield of the bond goes up.
III. The parity value of the bond decreases.
IV. The current yield of the bond goes down.

Answers:

A. I and III

B. III and IV

C. II and III

D. I and IV

Correct Answer: D. I and IV

Rationale: With a fixed conversion schedule, the parity value of the bond increases along with the price of the underlying stock. Since the nominal yield of the bond is fixed, the current yield, expressed as a percent of the bond’s price, goes down.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

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