Could you please explain why these two problems are worked differently? Problem

Question

Could you please explain why these two problems are worked differently?

Problem 1) A convertible bond has a par value of $1,000 and a current market value of $950. The current price of the issuing firm's stock is $22 and the conversion ratio is 40 shares. The bond's conversion premium is
A. $40.
B. $70.
C. $190.
D. $200.

$950 - $880 = $70.

Problem 2) A convertible bond has a par value of $1,000 and a current market value of $150. The current price of the issuing firm's stock is $65 and the conversion ratio is 15 shares. The bond's conversion premium is

A. $40.
B. $150.
C. $175.
D. $200.

$1,150 - $975 = $175.

Thanks!

Explanation / Answer

Conversion premium = Bond current price - Stock price x Number of share offered

Problem 1) B. $70

Conversion premium = Bond current price - Stock price x Number of share offered

Conversion premium = 950 - 22 x 40 = $70

.

Problem 2) C. $175

Conversion premium = Bond current price - Stock price x Number of share offered

Conversion premium = 1150 - 65 x 15 = $175

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