A Convertible Bond Currently Sells for $1,125, Has a $1,000

question 12

Multiple Choice

A convertible bond currently sells for $1,125, has a $1,000 face value, pays interest annually, and matures in six years. The bond is convertible into shares of common stock at a conversion price of $20. How many shares of stock will be received if five bonds are converted?

• A) 225
• B) 239
• C) 200
• D) 250
• E) 281

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Definitions:

Invested Capital

The total amount of money that shareholders and debt holders have invested in a company for long-term use.

Gross Assets

The total asset value on a company's balance sheet before deducting any liabilities or depreciation.

Capital Asset Ratio

This ratio measures a bank's financial strength by comparing its capital to its assets, assessing the bank's ability to withstand losses.

IRS Regulations

Rules and guidelines issued by the Internal Revenue Service that govern how taxes should be paid and reported in the U.S.