The holders of Looper Industries bond with a face value of $1,000 can exchange that bond for 20 shares of stock. The stock is selling for $35.00. What is the conversion premium?
A) 10.25%
B) 35.00%
C) 42.86%
D) 142.86%
E) None of these.

Question

Quizplus · Accepted Answer

To calculate the conversion premium, we need to find the price at which the 20 shares of stock is equivalent to the face value of the bond, which is $1,000.

20 shares * $35 per share = $700
$1,000 - $700 = $300 conversion premium

To express this as a percentage: 
($300/$700) x 100% = 42.86%

Therefore, the conversion premium is 42.86%.

The Holders of Looper Industries Bond with a Face Value