Ask Question
2 October, 15:00

Suppose a firm just issued a $1,000 par value convertible bond. Its conversion ratio is 30 and the stock currently sells for $25 per share. Would it make better financial sense to hold onto the bond or convert it?

+5
Answers (1)
  1. 2 October, 18:52
    0
    The bond should be held and conversion is not recommended

    Explanation:

    Conversion ratio specifies the no of shares which would be issued in exchange of one bond.

    Market price of a share = $25 per share.

    Hence convertible value of 1 bond = 30 shares / stocks * $25 = $750

    Face value of a bond = $1000

    Thus, it is advisable to hold the bond and not convert it since the bond's conversion value is less than it's face value. So investor in such a scenario stands to lose if he opts for conversion.
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “Suppose a firm just issued a $1,000 par value convertible bond. Its conversion ratio is 30 and the stock currently sells for $25 per share. ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers