Tangshan Mining Company has an outstanding issue of convertible bonds with a $1,000 par value. The bonds have a 10 percent coupon rate, have a 10-year maturity, and are convertible into 100 shares of common stock. The yield to maturity on bonds of similar risk is 10 percent and the market price of the firm's common stock is currently $15.00. Based on this information, the conversion value of the bond is ________.
A) $1,000.00
B) $1,500.00
C) $750.00
D) $1250.00

Question

Quizplus · Accepted Answer

The conversion value is equal to the number of shares the bond is convertible into multiplied by the current market price of the common stock. Therefore, the conversion value of the bond is 100 x $15 = $1,500.

Tangshan Mining Company Has an Outstanding Issue of Convertible Bonds