The next 4 problems must be kept together; all use the data in Exhibit 20.1.
Exhibit 20.1

-Refer to Exhibit 20.1.What is the bond's conversion ratio?

Question

The next 4 problems must be kept together; all use the data in Exhibit 20.1.
​Exhibit 20.1
 
-Refer to Exhibit 20.1.What is the bond's conversion ratio?

Quizplus · Accepted Answer

The bond's conversion ratio is calculated by dividing the par value of the bond ($1,000) by the conversion price ($35.00), which gives a conversion ratio of 28.57. This means that for every bond, the holder can convert it into 28.57 shares of common stock.

Based on the current market price of the bond ($1,030), it is trading at a premium. Therefore, it would not be advantageous for an investor to exercise the conversion option as they would receive more value holding onto the bond. Thus, the best choice would be to hold onto the bond and receive the coupon payments.

The Next 4 Problems Must Be Kept Together; All Use