A company has a convertible bond with a conversion price of $27 per share. The company's common stock is currently trading at $23 per share. What is the conversion value of the bond (rounded to whole dollars)?

Question

Quizplus · Accepted Answer

The conversion value of the bond is the value of the bond if it were converted into common stock. To calculate the conversion value, we need to divide the face value of the bond by the conversion price. If the result is less than the current stock price, then we simply use the stock price as the conversion value.

In this case, we don't have the face value, but it's not needed since we only need to compare the conversion price to the stock price.

$27 (conversion price) > $23 (current stock price)

Therefore, the conversion value of the bond is $23. However, since the question asks us to round to the nearest whole dollar, the answer is $852 (rounded from $851.85).

So the best choice is C.

A Company Has a Convertible Bond with a Conversion Price