I have the answers to the questions below but I don\'t understand this. I need s
ID: 2651465 • Letter: I
Question
I have the answers to the questions below but I don't understand this. I need some one to explain it to me a step by step breakdown
A firm has an outstanding bond with a $1,000 par value that is convertible at $40 per share of common stock. If the current market value of common stock per share is $45, the conversion value of the bond is
(a) $880.
(b) $1,000.
(c) $1,125.
(d) $1,200.
Answer: C
19. A firm has an outstanding bond with a $1,000 par value that is convertible into 50 shares of common stock. The bond’s conversion price per share is
(a) $20.
(b) $25.
(c) $50.
(d) $100.
Answer: A
Explanation / Answer
Answer
Answer 1
Figures in $
Particulars
Amount
Bond value
a
1000
Conversion value of per share of common stock
b
40
No of shares of common stock to be issued per bond (a/b)
c
25
Current market value of common stock per share
d
45
No of shares of common stock to be issued per bond
c
25
conversion value of the bond (c*d)
1125
Answer 2
Figures in $
Particulars
Amount
Bond value
a
1000
No of shares of common stock tobe issued per bond
b
50
Bond's conversion price per share (a/b)
20
Figures in $
Particulars
Amount
Bond value
a
1000
Conversion value of per share of common stock
b
40
No of shares of common stock to be issued per bond (a/b)
c
25
Current market value of common stock per share
d
45
No of shares of common stock to be issued per bond
c
25
conversion value of the bond (c*d)
1125