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) 0.00%
B) 29.86%
C) 59.01%
D) 106.61%
E) None of these.

Question

Quizplus · Accepted Answer

To calculate the conversion premium, we need to compare the value of the bond if it were to be converted to stock, to the current market value of the stock.

The value of the bond if it were to be converted to stock is 35 x $22 = $770.

Therefore, the conversion premium is:
($1,000 bond value - $770 conversion value) / $770 conversion value x 100% = 29.86%

So, the answer is B.

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