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 would the conversion price and conversion ratio be if Xenron had a 3 for 1 stock split?
A) $7.33; 75
B) $9.52; 105
C) $22.00; 25
D) $28.57; 35
E) None of these.

Question

Quizplus · Accepted Answer

Before the stock split, the conversion ratio was 35 shares of stock per bond. With the 3 for 1 stock split, the number of shares outstanding would triple, and so would the number of new shares received upon conversion. Therefore, the new conversion ratio would be 3 times the original ratio, or 105 shares of stock per bond. 
To find the new conversion price, we divide the face value of the bond ($1,000) by the new conversion ratio (105), which gives us $9.52. Therefore, the correct answer is B.

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