The common stock of Southern Airlines currently sells for $33, and its 8% convertible debentures (issued at par, or $1,000) sell

Question

3 years ago

13

for $850. Each debenture can be converted into 25 shares of common stock at any time before 2025. What is the conversion value of the bond?

1 answer:

JulijaS [17] · Answer 1 · 2022-09-23T11:35:57+03:00

Answer: $825

Explanation:

Convertible bonds or debentures can be converted into stock in a company by the holders.

The Conversion Value of the bond is given by;

Conversion Value of the Bond = Stock Price * Conversion Ratio

Conversion Ratio = 25 shares for one debenture.

= 25/1

= 25

Conversion Value of the Bond = Stock Price * Conversion Ratio

= 33 * 25

= $825