Question

A customer bought a $1,000 par convertible subordinated debenture at par, convertible into common at $31.25 per share. If the bond's market price increases by 20%, the conversion ratio will be:

Answer 1

Answer:

1:32

Explanation:

The conversion ratio depends whether or not the common stock price is variable or not. In this case is fixed at $31.25 It do not vary based on the bond current arket price. Thus, this ratio is fixed and determinated at the issuance of the bonds:

1,000 par value / 31.25 share price = 32.00 shares

Each bonds is converted into 32 shares

thus the ratio is 1:32