Question

In the October 26, 1992, prospectus summary of the Staples 6% convertible subordinated debentures due 1999, the offering stated: “Convertible into Common Stock at a conversion price of $40 per share . . .” If the par value is $1.000, a) What is the conversion ratio? b) What is the difference between a soft put and a hard put?

Answer 1

conversion ratio = par value /conversion price

                             = 1000/40

                             = 25

b)The major difference between soft put and hard put is that Hard put can be redeemed only for cash (that is when you exercise option ,you will receive cash) whereas Soft put can be redeemed for cash ,company common stock ,subordinates notes or combination of these securities.