The conversion price of CRX's convertible ($1,000 par) subordinated debentures is $40, and the present market price of CRX common stock is $48. Determine the present conversion value of the convertible issue.
A) $1,000
B) $1,200
C) $833
D) $1,680

Question

Quizplus · Accepted Answer

The conversion value is calculated by taking the current market price of the stock and multiplying it by the number of shares into which the bond can be converted. With a conversion price of $40, each $1,000 bond can be converted into $1,000/$40 = 25 shares. At a market price of $48 per share, the conversion value is 25 shares * $48 = $1,200.

The Conversion Price of CRX's Convertible ($1,000 Par) Subordinated Debentures