Corporate Bonds
A convertible bond has a conversion ratio of 25 shares. If the stock is trading at $38, what is the parity price of the bond?
Parity = conversion ratio x stock price. Tells you the conversion value.
Complete Analysis & Legal Rationale
Parity price (conversion value) = Conversion ratio x Stock price = 25 shares x $38 = $950. This represents the value of the bond if converted into stock immediately.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
$900 would require a stock price of $36.
Matches the verified teaching point in the explanation.
$1,000 is par value, not necessarily parity.
$1,050 would require a stock price of $42.
Official Standard: Outline-level citation: item maps to Series 7 topic coverage. Prefer a specific FINRA/SEC/MSRB rule citation in a later author pass.