Asked by Kiran Rawal on Jul 17, 2024
Verified
The conversion value of a convertible bond is computed as the:
A) Conversion ratio multiplied by the price of the stock.
B) Conversion ratio multiplied by the conversion price.
C) Face value of the bond plus the conversion premium.
D) Face value of the bond multiplied by (1 + conversion premium) .
E) Face value of the bond multiplied by (1 + conversion price) .
Conversion Value
The financial worth of converting a convertible security into its underlying shares, calculated based on the current price of the shares.
Conversion Ratio
The specific quantity of a secondary security that can be converted from a primary security, used in the context of convertible bonds and preferred stocks.
- Absorb the understanding of convertible bonds, focusing on their features and their valuation implications.
Verified Answer
SR
Sergio RangelJul 23, 2024
Final Answer :
A
Explanation :
The conversion value of a convertible bond is calculated by multiplying the conversion ratio (the number of shares a bond can be converted into) by the current price of the stock. This gives the value of the bond if it were converted into stock at the current market prices.
Learning Objectives
- Absorb the understanding of convertible bonds, focusing on their features and their valuation implications.