If a $1,000 Convertible Bond Has a Conversion Ratio of 50

question 89

Multiple Choice

If a $1,000 convertible bond has a conversion ratio of 50 and the firm's equity is currently selling for $22 per share,then the:

• A) bond should trade for at least $900.
• B) bond should trade for at least $1,000.
• C) bond should trade for at least $1,100.
• D) firm will have already converted the bond.

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Definitions:

High Inflation Rates

A situation characterized by a rapid and excessive rise in the general price level of goods and services in an economy over a period of time.

Economy Growth

An increase in the economic output and productivity of a country, often measured by its gross domestic product (GDP) over time.

Investment Bank

A financial institution that assists individuals, corporations, and governments in raising financial capital by underwriting or acting as the client's agent in the issuance of securities.

Federal Budget Deficits

The shortfall that occurs when the U.S. government's expenditures exceed its revenues within a fiscal year.