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  • 4 years ago

B & O Railroad's convertible debentures were issued at their $1,000 par value in 2008. At any time prior to maturity on February 1, 2028, a debenture holder can exchange a bond for 25 shares of common stock. What is the conversion price, Pc ? a. $25 b. $40 c. $1,025 d. $1,000 e. $50

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  1. anonymous
    • 4 years ago
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    A convertible note (or debenture or wtv) is usued at par and you know from the beginning you get 25 shares for each note. So, $1,000=25 shares --> divide each side by 25 and you get your conversion ratio, $1000/25=conversion ratio of 40. The conversion price is the ratio of the par value of your note to your conversion ratio, so $1,000/40=$25. http://www.maileyrogers.com/documents/Intro_to_Convertible_Debentures.pdf

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