The holders of Mikayla Corporation's bond with a face value of $1,000 can exchange that bond for 30 shares of stock. The stock is selling for $25.00.
-Refer to the above scenario.What would the conversion price and conversion ratio be if Mikayla had a 4 for 1 stock split?
A)$5.33; 75
B)$8.33; 120
C)$22.00; 125
D)$27.50; 135
E)None of the above.

Question

Quizplus · Accepted Answer

Before the stock split, the conversion price would be $25.00/30 = $0.83 per share. The conversion ratio would be 1,000/$0.83 = 1,204.82 shares.
After the 4 for 1 stock split, the number of shares outstanding would increase by a factor of 4, so the conversion ratio would be multiplied by 4 to become 4,819.28 shares. The face value of the bond remains the same, so the conversion price would be adjusted to $1,000/4,819.28 = $0.2075 per share, or $8.33 for the 30 shares of stock. Therefore, the answer is (B) $8.33; 120.

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