The holders of Xenron Corporation's bond with a face value of $1,000 can exchange that bond for 35 shares of stock. The stock is selling for $22.00. What is the conversion premium?
A) 29.87%.
B) 106.61%.
C) 0.00%.
D) 59.01%.

Question

Quizplus · Accepted Answer

The conversion value of the bond is the current stock price times the number of shares for which the bond can be exchanged, which is $22.00 * 35 = $770. The conversion premium is the difference between the bond's face value and its conversion value, divided by the conversion value. Thus, the conversion premium is (($1,000 - $770) / $770) * 100 = 29.87%.

The Holders of Xenron Corporation's Bond with a Face Value