Valuation of Convertible Instruments

Question 1 of 10

1

Face value of bond = Rs.100; Rate of interest on bond = 8%; Return on similar bonds = 9.5%. Term = 4 years. Bond is convertible into 5 shares. CMP of equity share = 15. What is bond's conversion value?

Select one of the following:

100
95.24
75
15

Explanation

Question 2 of 10

1

Face value of bond = Rs.100; CMP of bond = Rs.100 Rate of interest on bond = 8%; Return on similar bonds = 9.5%. Term = 4 years. Bond is convertible into 5 shares. CMP of equity share = 15. What is bond's conversion premium per share?

Select one of the following:

20
15
5
25

Explanation

Question 3 of 10

1

Face value of bond = Rs.100; CMP of bond = Rs.100; Rate of interest on bond = 8%; Return on similar bonds = 9.5%. Term = 4 years. Bond is convertible into 5 shares. CMP of equity share = 15. What is conversion parity price?

Select one of the following:

20
15
100
10

Explanation

Question 4 of 10

1

Face value of bond = Rs.100; Rate of interest on bond = 8%; Return on similar bonds = 9.5%. Term = 4 years. Bond is convertible into 5 shares. CMP of equity share = 15. What is bond's straight value?

Select one of the following:

100
75
95.26
89.67

Explanation

Question 5 of 10

1

Face value of bond = Rs.100; CMP of bond = Rs.100; Rate of interest on bond = 8%; Return on similar bonds = 9.5%. Term = 4 years. Bond is convertible into 5 shares. CMP of equity share = 15. What is downside risk (in Rs.)?

Select one of the following:

0
10.33
4.76
25

Explanation

Question 6 of 10

1

Face value of bond = Rs.100; Interest rate on bond = 10%. Bond is convertible into 10 shares. Likely dividend per share is Rs.0.2. What is favorable income differential per share?

Select one of the following:

9.80
0.20
0.80
8

Explanation

Question 7 of 10

1

Existing EPS = Rs.2; Existing no of shares = 1,00,000. Company plans to issue 7% preference capital of Rs.10,00,000. What should be the increase in earnings post preference issue to maintain EPS?

Select one of the following:

No change required
Increase by 7%
Increase by 35%
Increase by 70%

Explanation

Question 8 of 10

1

Conversion premium per bond = Rs.100. One bond is convertible into 10 shares. Favorable income differential per share = Rs.4. How much is the premium payback period?

Select one of the following:

25 years
2.5 years
10 years
None of the above

Explanation

Question 9 of 10

1

Face value = Rs.1,000; Rate of interest = 10%. The bond is convertible into 10 equity shares whose current market price is Rs.80. Growth rate in equity share is 10%. What will be the terminal cash flow at end of year 5?

Select one of the following:

800
1,000
1,288.41
None of the above

Explanation

Question 10 of 10

1

CMP of bond = Rs.1,200. One bond is convertible into 10 shares. CMP of share is Rs.125. Should the investor opt for conversion?

Select one of the following:

Yes
No
Investor would be indifferent on conversion

	Created by Dinesh Jain over 4 years ago

Chartered Accountancy Strategic Financial Management Quiz on Valuation of Convertible Instruments, created by Dinesh Jain on 01/11/2019.

Valuation of Convertible Instruments

Question 1 of 10

Face value of bond = Rs.100; Rate of interest on bond = 8%; Return on similar bonds = 9.5%. Term = 4 years. Bond is convertible into 5 shares. CMP of equity share = 15. What is bond's conversion value?

Select one of the following:

Explanation

Question 2 of 10

Face value of bond = Rs.100; CMP of bond = Rs.100 Rate of interest on bond = 8%; Return on similar bonds = 9.5%. Term = 4 years. Bond is convertible into 5 shares. CMP of equity share = 15. What is bond's conversion premium per share?

Select one of the following:

Explanation

Question 3 of 10

Face value of bond = Rs.100; CMP of bond = Rs.100; Rate of interest on bond = 8%; Return on similar bonds = 9.5%. Term = 4 years. Bond is convertible into 5 shares. CMP of equity share = 15. What is conversion parity price?

Select one of the following:

Explanation

Question 4 of 10

Face value of bond = Rs.100; Rate of interest on bond = 8%; Return on similar bonds = 9.5%. Term = 4 years. Bond is convertible into 5 shares. CMP of equity share = 15. What is bond's straight value?

Select one of the following:

Explanation

Question 5 of 10

Face value of bond = Rs.100; CMP of bond = Rs.100; Rate of interest on bond = 8%; Return on similar bonds = 9.5%. Term = 4 years. Bond is convertible into 5 shares. CMP of equity share = 15. What is downside risk (in Rs.)?

Select one of the following:

Explanation

Question 6 of 10

Face value of bond = Rs.100; Interest rate on bond = 10%. Bond is convertible into 10 shares. Likely dividend per share is Rs.0.2. What is favorable income differential per share?

Select one of the following:

Explanation

Question 7 of 10

Existing EPS = Rs.2; Existing no of shares = 1,00,000. Company plans to issue 7% preference capital of Rs.10,00,000. What should be the increase in earnings post preference issue to maintain EPS?

Select one of the following:

Explanation

Question 8 of 10

Conversion premium per bond = Rs.100. One bond is convertible into 10 shares. Favorable income differential per share = Rs.4. How much is the premium payback period?

Select one of the following:

Explanation

Question 9 of 10

Face value = Rs.1,000; Rate of interest = 10%. The bond is convertible into 10 equity shares whose current market price is Rs.80. Growth rate in equity share is 10%. What will be the terminal cash flow at end of year 5?

Select one of the following:

Explanation

Question 10 of 10

CMP of bond = Rs.1,200. One bond is convertible into 10 shares. CMP of share is Rs.125. Should the investor opt for conversion?

Select one of the following:

Explanation