Mainord Corporation issues $100,000 of 10-year,6% convertible bonds.Each $1,000 bond is convertible into 25 common shares.On the date of the issue,the shares had a market value of $50 per share.What is the intrinsic value of the conversion feature?

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The intrinsic value of the conversion feature is the difference between the market value of the common shares and the conversion price. In this case, the conversion price is $1,000/25 shares = $40 per share. The market value of the shares is $50 per share. Therefore, the intrinsic value of the conversion feature is $50 - $40 = $10 per share. Multiplying by the number of shares per bond gives $10 x 25 = $250 per bond. Multiplying by the total number of bonds issued gives $250 x 100 = $25,000, which is the intrinsic value of the conversion feature.

Mainord Corporation Issues $100,000 of 10-Year,6% Convertible Bonds