CFA Level 1: Determine Dilutive or Antidilutive Convertible Security Test

Dilutive or Antidilutive Convertible Security Test

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Question

A test to determine whether a convertible security is dilutive or antidilutive is to calculate EPS

Answers

A. for the security alone and compare it to the EPS without inclusion of the security.

B. for the security alone and compare it to the EPS with inclusion of the security.

C. for the security alone.

D. without inclusion of the security.

E. with inclusion of the security. A

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Explanations

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A. B. C. D. E.

Explanation

By comparing the EPS of the security alone with the EPS without inclusion of the security, if the former is smaller than the latter, then the security is dilutive which means it causes EPS to decline.

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