Question

# O'Reilly Moving Company has a \$1,000 par value convertible bond outstanding that can be converted into...

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 round intermediate calculations and round your answer to 2 decimal places.)

Conversion Value

b. What is the conversion premium? (Do not round intermediate 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

#### Homework Answers

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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