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 value of the bond?
A) $35
B) $70
C) $700
D) $1,000
E) No conversion premium is given.

Question

Quizplus · Accepted Answer

The conversion value of the bond is the value of the stock received upon conversion, which is calculated by multiplying the number of shares received (20) by the current market price ($35.00), for a conversion value of $700. Since this conversion value is greater than the face value of the bond ($1,000), there is a conversion premium associated with it.

The Holders of Looper Industries Bond with a Face Value