Sam owns a $1,000 par value, convertible bond which can be converted now.The conversion ratio is 20 and each share of stock is currently selling for $40 per share.What would be the conversion value of the bond, and should Sam convert the bond or hold it to maturity?
A)The conversion value is $2,000 and Sam should convert.
B)The conversion value is $1,200 and Sam should convert.
C)The conversion value is $975 and Sam should hold the bond to maturity.
D)The conversion value is $800 and Sam should hold the bond to maturity.

Question

Quizplus · Accepted Answer

1,000 par value/20 = 50 shares of stock
50 × $40 = $2,000 > $1,000 par value

Sam Owns a $1,000 Par Value, Convertible Bond Which Can