Question

WMT 9s of 15 have a conversion price of $11.00. If WMT common stock sells for...

WMT 9s of 15 have a conversion price of $11.00. If WMT common stock sells for $8 per share, what is the conversion ratio for this bond?

A. 90.91

B. 111.11

C. 125.00

D. 1.370.00

E. 727.27

F. 888.88

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Homework Answers

Answer #1

The conversion ratio is the number of common shares received at the time of conversion for each convertible security . The higher the ratio, the higher the number of common shares exchanged per convertible security . The conversion ratio is determined at the time the convertible security is issued and has an impact on the relative price of the security.

conversion ratio = par value of bond/ conversion price

Par or face value of bond = 1000 ( assumed)

Conversion price is

11

Conversion ratio

90.91(1000/11)

Answer A

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