A convertible bond has a face value of $1,000 and a conversion price of $22.50. The bond has a 6 percent coupon and pays interest semi-annually. The bond matures in six years. Similar bonds are yielding 7 percent. The current price of the stock is $21.24. What is the conversion value of this bond?
A) $882.24
B) $944.00
C) $980.85
D) $1,010.08
E) $1,059.32

Question

Quizplus · Accepted Answer

The conversion value of a bond is calculated by multiplying the current price of the stock by the number of shares into which the bond can be converted. The conversion ratio is the face value of the bond divided by the conversion price. Here, the conversion ratio is $1,000 / $22.50 = 44.4444 shares. The conversion value is then 44.4444 shares * $21.24 (current stock price) = $944.00.

A Convertible Bond Has a Face Value of $1,000 and a Conversion