Graybar recently sold a convertible bond with a $1,000 par value for a flotation cost of 2% (each bond produced $980 for the firm). What is the conversion price if the conversion ratio is 22?

Question

Quizplus · Accepted Answer

Flotation cost = 2% of $1,000 par value = $20
So the firm received $980 for each bond issued.
The conversion price can be calculated as: 
Conversion Price = Par Value / Conversion ratio
= $1,000 / 22 
= $45.45 
Therefore, the answer is B.

Graybar Recently Sold a Convertible Bond with a $1,000 Par