The holders of Xenron Corporation's bond with a face value of $1,000 can exchange that bond for 35 shares of stock. The stock is selling for $22.00.
-Refer to the above scenario.What would the conversion price and conversion ratio be if Xenron had a 3 for 1 stock split?
A)$7.33; 75
B)$9.52; 105
C)$22.00; 25
D)$28.57; 35
E)None of the above.

Question

Quizplus · Accepted Answer

Before the stock split, the conversion ratio is 35 shares per bond. After the 3 for 1 stock split, the number of shares increases by a factor of 3, so the new conversion ratio is:
35 shares/bond x 3 = 105 shares/bond
The bond has a face value of $1,000, so the old conversion price is:
$1,000/35 shares = $28.57/share
After the stock split, the number of shares also increases by a factor of 3, so the new conversion price is:
$28.57/share / 3 = $9.52/share
Therefore, the new conversion price and conversion ratio are $9.52 and 105 shares/bond, respectively, making choice (B) the correct answer.

The Holders of Xenron Corporation's Bond with a Face Value