You purchase a $1000 face value convertible bond for $975. The bond can be converted into 150 shares of stock. The stock is currently priced at $5.25. At what minimum stock price would you be willing to convert?

Question

Quizplus · Accepted Answer

To break even on the conversion, the value of the shares received should at least equal the price paid for the bond. You paid $975 for the bond, and you can convert it into 150 shares. Therefore, the minimum stock price for conversion is $975/150 = $6.50.

You Purchase a $1000 Face Value Convertible Bond for $975