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 convertible bond is the number of shares that can be obtained by converting the bond multiplied by the current market price of the stock. In this case, the conversion price is $50, so the number of shares that can be obtained by converting the bond is $1,000/$50 = 20 shares. The current market price of the stock is $45, so the conversion value of the bond is 20 shares x $45 = $900. Therefore, the best choice is C.

The Bonds of VDM, Inc