Question

O'Reilly Moving Company has a $1,000 par value convertible bond outstanding that can be converted into 25 shares of common stock. The common stock is currently selling for $40.10 a share, and the convertible bond is selling for $1,050.

**a.** What is the conversion value of the bond?
**(Do not rou****nd intermediate calculations
and round your answer to 2 decimal places.)**

**Conversion Value**

**b.** What is the conversion premium? **(Do
not round i****ntermediate calculations and round your
answer to 2 decimal places.)**

Conversion Premium

**c.** What is the conversion price? **(Do
not round intermediate calculations and round your answer to 2
decimal places.)**

**Conversion Price**

Answer #1

Here first we calculated the Coversion ratio :-

Conversion ratio means numbers of share you will be received for bond exchanged.

Conversion ratio = 25 shares

a) Calculaton of the conversion value :-

conversion value = Stock price * conversion ratio = $ 40.10 * 25 shares = $ 1002.50

b) Calculaton of the conversion premium :-

Conversion premium = current price of covertible bond - conversion value = $ 1050 - 1002.50 = $ 47.50

c) Calculation of the conversion price :-

Conversion price = par value / conversion ratio = 1000 / 25 = $ 40

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