Johannesburg Corp

question 17

Multiple Choice

Johannesburg Corp.has two issues of securities outstanding: no par value common shares and 8% convertible bonds with a par value of $8,000,000.Bond interest payment dates are June 30 and December 31.The conversion clause in the bond indenture entitles the bondholders to receive 40 common shares in exchange for each $1,000 bond.The value of the equity portion of the bond issue is $60,000.On June 30, 2017, the holders of $1,200,000 par value bonds exercise the conversion privilege.The market price of the bonds on that date is $1,100 per bond and the market price of the common shares is $35.The total unamortized bond discount at the date of conversion is $500,000.In applying the book value method, what amount should Johannesburg credit to Common Shares as a result of this conversion?

• A)$1,284,000
• B)$1,134,000
• C)$1,125,000
• D)$1,116,000

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Definitions:

Single Index Model

A simplified method to estimate the return of a security or portfolio by relating it to the return of a single market index, using statistical measures.

Portfolio's Sigma

A term referring to the standard deviation of a portfolio, quantifying the portfolio's volatility or risk.

Market Index

A statistical measure that represents the overall performance of a group of stocks, indicating trends in a specific financial market.

Treasury Bills

Short-term government securities with maturities of one year or less.