Assume a bond had a conversion price of $40 and a conversion ratio of 25.What would be the conversion ratio and conversion price if the bond issuer declared a stock split of 4-for-1?
A)2.50; $400
B)100; $10
C)25; $40
D)6.25; $160
E)100; $25

Question

Quizplus · Accepted Answer

If there is a 4-for-1 stock split, the number of shares increases by a factor of 4 and the stock price decreases by a factor of 4. Therefore, the new conversion price would be $40/4 = $10 and the new conversion ratio would be 25 x 4 = 100. Choice B matches these values.

Assume a Bond Had a Conversion Price of $40 and a Conversion