Question

company's convertible bond has a conversion ratio of 50, and its stock is currently trading for $32/share.

1. What is its Conversion Price?

2. What is the bond’s current price?

Answer 1

A) Converion Ratio = Par Value / Conversion Price

Or

Conversion Price = Par Value / Conversion Ratio

Par Value = $1,000

So, Conversion Price = 1,000 / 50

= $20

The Conversion Price is $20

B) To Calculate Bond's current price

Conversion Ratio is the Number of shares that the investor would get in exchange of the bond. In this case, conversion ratio is 50, So, the Number of shares would be same.

Bond's Current Price = Number of shares * share market price

= 50 * 32

= $1600

Bond's Current Price = $1600