The bonds of VDM, Inc. are convertible into shares of the firm's common stock at $50 per share. The current price of the common stock is $45 per share. The bonds have a $1,000 par value and currently sell for $950 apiece. When the bonds were issued, the market price of the common stock was $40. What is the conversion value of these bonds?

Question

Quizplus · Accepted Answer

The conversion value of a bond is the number of shares of common stock that can be obtained by converting the bond. In this case, each bond can be converted into 20 shares of common stock ($1,000 par value / $50 conversion price). The conversion value is therefore 20 * $45 = $900.

The Bonds of VDM, Inc