$$\begin{array} { l l }
\text { Couporc } & 0 \% \
\text { Conversion Ratio } & 20 \% \text { shanes per } \$ 1000 \text { principol amount } \
\text { Call Dates } & \text { 1 July } 2012 \
\text { Call Prick: } & \text { Par } \
\text { MSaturity: } & \text { 1 July } 2019
\end{array}$$ A firm issues the convertible debt shown above. The share price of this company on 1 July 2012 is $4.95. If the bonds are called on this date, which of the following is the action most likely to be taken by a holder of a bond of face value $10,000?

Question

$$\begin{array} { l l } 
\text { Couporc } & 0 \% \
\text { Conversion Ratio } & 20 \% \text { shanes per } \$ 1000 \text { principol amount } \
\text { Call Dates } & \text { 1 July } 2012 \
\text { Call Prick: } & \text { Par } \
\text { MSaturity: } & \text { 1 July } 2019
\end{array}$$ A firm issues the convertible debt shown above. The share price of this company on 1 July 2012 is $4.95. If the bonds are called on this date, which of the following is the action most likely to be taken by a holder of a bond of face value $10,000?

Quizplus · Accepted Answer

The conversion ratio is 20 shares per $1000, so for a $10,000 bond, the holder can convert to 200 shares. At a share price of $4.95, the shares would be worth $990. However, the question seems to have a typo in the share price or conversion ratio. Assuming the conversion ratio is correct, the value of shares would be $4.95 * 200 = $990. The correct choice should reflect the value of shares based on the given conversion ratio and share price.

A Firm Issues the Convertible Debt Shown Above