A convertible bond has a par value of $1,000 but its current market price is $950.The current price of the issuing company's stock is $19 and the conversion ratio is 40 shares.The bond's conversion premium is _________.

Question

Quizplus · Accepted Answer

To calculate the conversion premium, we first need to determine the bond's conversion value, which is the market price of the stock multiplied by the conversion ratio. In this case, the conversion value is:
$19 x 40 = $760

Then, we divide the bond's market price ($950) by the conversion value ($760) and subtract 1 to get the conversion premium:
($950 / $760) - 1 = 0.25
0.25 x 100% = 25%

Therefore, the conversion premium is $190.00.

A Convertible Bond Has a Par Value of $1,000 but Its