The holders of Xenron Corporation's bond with a face value of €1,000 can exchange that bond for 35 shares of equity.The equity is selling for €22.00.What is the closest conversion premium?
A)0.00%
B)29.86%
C)59.01%
D)106.61%
E)None of the above.

Question

Quizplus · Accepted Answer

The market value of the equity received would be 35 x €22.00 = €770.00
Therefore, the conversion value is €770.00.
The conversion premium is (1,000-770)/770 = 0.299 ≈ 29.86%
So, the closest conversion premium is 29.86%.

The Holders of Xenron Corporation's Bond with a Face Value