A Convertible Bond Is Currently Selling for $1,125

question 124

Multiple Choice

A convertible bond is currently selling for $1,125.It is convertible into 20 shares of common which presently sell for $40 per share.The conversion premium is:

• A) $325.
• B) $215.
• C) 66.74 shares.
• D) 23.80 shares.
• $40 stock price × 20 shares = $800 conversion value
• Conversion premium = Bond price of $1,125 - Conversion value of $800 = $325

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