If a $1,000 bond is issued with a conversion feature that is convertible into 40 shares of common stock,what is the implied exercise price of the shares?

Question

Quizplus · Accepted Answer

The implied exercise price is the price at which the bondholder can purchase each share of stock upon conversion. To calculate this, we divide the bond's face value by the number of shares into which it is convertible:

$1,000 bond / 40 shares of stock = $25 per share

Therefore, the implied exercise price is $25 per share, which is answer choice C.

If a $1,000 Bond Is Issued with a Conversion Feature