Series 7 - General Securities Representative Exam
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Jennifer Low has a 9 percent JLO convertible bond. The bond is currently trading at 104 and JLO stock is trading at 28. If the conversion price is 27, which of the following statements is TRUE?
The stock is trading below parity & Converting the bond is not profitable
A
The stock is trading below parity & Converting the bond is profitable
B
Converting the bond is profitable & The stock is trading above parity
C
Converting the bond is not profitable & Converting the bond is profitable
D
Explanations
The stock is trading above the conversion price. It is above parity. Converting when the stock is trading above parity is always profitable