You own a bond that has a face value of $1,000 and a conversion ratio of 26.You have just received notification that the bond is being called at a premium of $40.The stock price is $41.20 a share.You should _____ your bond because the conversion value is _____.

Question

Quizplus · Accepted Answer

Conversion value = 26 × $41.20 = $1,071.20Call price = $1,000 + $40 = $1,040Difference = $1,071.20 - $1,040 = -$31.20You should convert your bond because the conversion value is $31.20 greater than the call price.

You Own a Bond That Has a Face Value of $1,000