The holders of Xenron Corporation's bond with a face value of €1,000 can exchange that bond for 35 shares of equity.The equity is selling for €22.00.What would the conversion price and conversion ratio be if Xenron had a 3 for 1 equity split?

Question

Quizplus · Accepted Answer

Before the equity split, the conversion ratio was 35 shares of equity for every €1,000 bond.

After the 3 for 1 equity split, each original share was split into 3 shares. This means that for every old share, there are now 3 new shares.

Therefore, the new conversion ratio would be:

35 shares * 3 = 105 shares

To find the new conversion price, we need to divide the face value of the bond by the new conversion ratio:

€1,000 / 105 shares = €9.52 per share

Therefore, the new conversion price would be €9.52.

The correct answer is B.

The Holders of Xenron Corporation's Bond with a Face Value