A bond with a face value of $1,000 can be exchanged for 35 shares of stock with a current market price of $22 per share.What would the conversion ratio and conversion price be if the bond's issuer declared a stock split of 3-for-1?
A)75; $7.33
B)105; $9.52
C)105; $22.00
D)35; $22.00
E)105; $7.33

Question

Quizplus · Accepted Answer

Initially, the conversion ratio is 35/1000 = 0.035
After the 3-for-1 stock split, the number of shares received for each bond is 35*3 = 105
The new conversion ratio is 105/1000 = 0.105
The new conversion price is the market price divided by the new conversion ratio: $22/0.105 = $209.52 rounded to $9.52. Therefore, the correct answer is (B).

A Bond with a Face Value of $1,000 Can Be