The holders of Mikayla Corporation's bond with a face value of $1,000 can exchange that bond for 30 shares of stock. The stock is selling for $25.00. What is the conversion premium?
A) 10.00%
B) 27.58%
C) 33.32%
D) 103.23%
E) None of these.

Question

Quizplus · Accepted Answer

The conversion premium is the difference between the conversion value and the face value of the bond, divided by the face value of the bond. In this case, the conversion value is 30 shares of stock x $25.00 per share = $750.00. The conversion premium is ($750.00 - $1,000.00) / $1,000.00 = 0.3332, or 33.32%.

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