The question that you didn’t get which I need to rephrase (my bad!) is answered by the above. i.e. (hopefully I’m going to get this right now!):

conversion price = strike = outlined in bond indenture and what you use to get the conversion ratio and market conversion price etc. This is the ‘strike’ because it…Read more

Q14 at the end of Reading 43 in the curriculum – the answer adds on bid-offer spread in the calculation of the total holding period cost, even though you already have the round-trip trading commission given and could just do AMC + round-trip % = total holding period cost, according to the formula given earlier in the curriculum.

The…Read more

In the question, the ‘current conversion price’ is labelled as $25, the share price is $30.20, par = $100k, current convertible bond price = $127,000 ; current conversion ratio = 100k/25…Read more

So, just to make sure I’ve got this right, in my head the rule is: there is only an arb opp if there is some ‘price improvement’ in the arb or dealer spread for the opposite transaction, i.e. if you can buy cheaper in the market but…Read more

1) the fair market arbitrage quote has to either be nowhere near…Read more

I just want to check my knowledge of MACRS depreciation is ok…Do I understand it right that if you have a 3yr project the terminal cashflow in yr 3 will still be using the MACRS % for yr 3 – I’m guessing the 4th extra and last year depreciation amount is shown on financial statements after the project is over and that’s fine and not…Read more

I don’t see how the above equivalency works…In my head:

• if interest rates are going down, a long callable bond is disadvantageous to the holder,
  because it would be called and the company would refinance at lower rates.
• A long bond would be worth…

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I’ve got myself in a bit of a muddle over the convertible bond formulas.

Is the conversion ratio static or always changing depending on the market price of the convert bond? In some questions I’ve come across, it seems that it is static, based on the following formula:

par/initial conversion ratio = conversion price of the bond

In…Read more

So would a negative earnings surprise still increase the option premium of a call if the IV goes down in value, but the theta increases? i.e. Theta increase has a bigger overall impact?

To me, I would have thought that as you go up the x axis (further away from zero in the middle…Read more

I’m trying to get my head round a Schweser mock question (vol 1, exam 2 am question). the question is essentially:

You bought a put 5 months ago, premium = $2.81, strike is $30; share price at the time was $42. If the put’s premium has increased to $3.18 from $2.18 now you are closer to expiration which is now 18 days away, what has most…Read more

I just want to double check that if you are given a table of squared residuals and asked to check if ARCH is present, you should only look at the p-Value for the slope, not the intercept to see if there is significance? I ask because I’ve just come across a Schweser question testing against 5% sig and intercept p is 0.01 (sig) and the…Read more