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Question:
Consider the following information regarding a convertible bond:
Par value = $1,000
Conversion ratio = 30:1
Convertible bond price = $1,020
Given that the conversion premium is $30, the current share price is closest to:
A
$33.00.
explanation
Given the convertible bond price of $1,020, a conversion premium of $30 implies that the conversion value is $990. Because the conversion ratio is 30:1, the current price per share will be $990/30 = $33.
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