Question

1/ If a $1,000 par value convertible bond has a conversion ratio of 1 bond to...

1/ If a $1,000 par value convertible bond has a conversion ratio of 1 bond to 70 shares, the bond conversion price is $14.29.

True

False

2/ A conversion premium is ultimately the additional amount given up to convert the bond to stock.

True

False

3/ Forced conversion refers to the corporation calling a convertible bond. This is ideal when the market price of the stock is above the conversion price by more than a small percentage.

True

False

4/ A "put option" is the right to purchase securities at a predetermined price.

True

False

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Answer #1
1 Flase
The Conversion Price is necessary to determine the no of shares to be received upon conversion
Generally, the conversion price is set at a significant higher amount than the current stock price.
2 TRUE
A conversion premium is u;ultimately the additional amount by which the price of a convertible security
exceeds current market value of the stock
3 TRUE
Force conversion happens when the price of the stock is higher than the conversion amount
4 FALSE
A Put option is a right to sell securities at a predetermined price
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