Kurt owns a convertible bond that matures in three years. The bond has an 8 percent coupon and pays interest annually. The face value of the bond is $1,000 and the conversion price is $16.67.
Similar bonds have a market return of 9 percent. The current price of the stock is $17.50. What is the
Conversion value of this bond?
A) $952.57
B) $974.69
C) $1,038.30
D) $1,049.79
E) $1,144.27

Question

Quizplus · Accepted Answer

The conversion value of a convertible bond is the current market price of the stock multiplied by the number of shares into which the bond can be converted. In this case, the conversion price is $16.67 and the current price of the stock is $17.50. Therefore, the conversion value of the bond is $17.50 x 100 = $1,750.

Kurt Owns a Convertible Bond That Matures in Three Years