What is the percentage conversion premium of a convertible bond with market value of $900, conversion value of $800, and par value of $1,000?

Question

Quizplus · Accepted Answer

The conversion premium is the difference between the market value of the convertible bond and its conversion value, expressed as a percentage of the conversion value.
Conversion premium = (Market value of convertible bond - Conversion value)/ Conversion value x 100%
Here, the conversion premium = ($900 - $800)/$800 x 100% = 12.5%
Therefore, the correct answer is choice C) 12.5%.

What Is the Percentage Conversion Premium of a Convertible Bond