The convertible bonds have a face value of $1,000 which can be converted into 50 common shares. Current price of the stock is $19, and bond is $980. Convertible bonds or debenture is a type of bond which has the option of converting the bonds to common shares. Each share price or the conversion price is determined by the face value of the bond and the conversion ratio. Conversion Price = Price of the bond Conversion ratio When, the market price of the stock is more than the conversion price, then the bondholders can sell the stock and gain from the difference in price.

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Chapter 6, Problem 3PROB

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The convertible bonds have a face value of $1,000 which can be converted into 50 common shares. Current price of the stock is $19, and bond is $980.

Convertible bonds or debenture is a type of bond which has the option of converting the bonds to common shares. Each share price or the conversion price is determined by the face value of the bond and the conversion ratio.

Conversion Price=Price of the bondConversion ratio

When, the market price of the stock is more than the conversion price, then the bondholders can sell the stock and gain from the difference in price.

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