You own a bond that has a face value of $1,000 and a conversion ratio of 25. You have just received notification that the bond is being called at a premium of $40. The stock price is $41.20 a share. You should ________ your bond because the conversion value is ________.

Question

Quizplus · Accepted Answer

The conversion value is the current stock price times the conversion ratio, which is $41.20 * 25 = $1030. The call price is the face value plus the premium, which is $1000 + $40 = $1040. Therefore, the conversion value ($1030) is less than the call price ($1040) by $10.

You Own a Bond That Has a Face Value of $1,000