SaundersThe following data apply to Saunders Corporation's convertible bonds: $\begin{array}{llll}
\text { Maturity: } & 10 & \text { Stock price: } & \$ 30.00 \
\text { Parvalue: } & \$ 1,000.00 & \text { Conversion price: } & \$ 35.00 \
\text { Annual coupon: } & 5.00 \% & \text { Straight-debt yield: } & 8.00 \%
\end{array}$
-Refer to Scenario: Saunders.What is the bond's conversion value?

Question

Quizplus · Accepted Answer

The conversion value of a bond is calculated by taking the current stock price and multiplying it by the conversion ratio (the number of shares a bond can be converted into). The conversion ratio is the par value of the bond divided by the conversion price. Here, the conversion ratio is $1,000 / $35 = 28.57 shares. The conversion value is then 28.57 shares * $30.00 = $857.14.

SaundersThe Following Data Apply to Saunders Corporation's Convertible Bonds -Refer to Scenario: Saunders