Question

Ford Motor Company has issued 8% convertible debentures, convertible at a 25:1 ratio. Currently the debenture is trading at 110. The stock is trading at 38. What is the conversion price of the stock?
25
38
44
40

Answer 1

Answer:

Conversion price of the stock = 40

so correct option is (d) 40

Explanation:

given data

convertible ratio = 25:1

convertible debentures = 8%

stock is trading = 38

debenture trading = 110

solution

we get here Conversion price of the stock  that is express as

Conversion price of the stock = Par value of the bond ÷ Conversion ratio  ............1

Conversion price is price paid per equity share to acquire it through conversion

and Conversion ratio is 25 shares per bond if converted

put here value and we get

Conversion price of the stock = $\frac{1000}{25}$

Conversion price of the stock = 40

so correct option is (d) 40