What is the value of a convertible bond with a conversion ratio of 25, face value of $1,000, coupon of 10% and yield of 10 percent? Common stock of this firm is currently selling at $35.
A)$875
B)$1,000
C)$1,125
D)$1,875 Conversion value = 25 x 35 = $875
Floor value of the par bond is $1,000

Question

Quizplus · Accepted Answer

The convertible bond's value is the higher of its conversion value ($875) and its floor value ($1,000), which is the face value in this case.

What Is the Value of a Convertible Bond with a Conversion