Corporate Debt Flashcards by Megan Schroeder

Q

Chapter 6 – Corporate Debt

What is the formula to calculate the Conversion Ratio of a convertible bond?

A

Conversion Ratio = Par Value ($1,000) ÷ Conversion Price

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Q

Chapter 6 – Corporate Debt

If the conversion price of a convertible bond is $20, what is the conversion ratio?

A

50-for-1

Calculation: $1,000 par value ÷ $20 conversion price

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Q

Chapter 6 – Corporate Debt

How do you find the Parity Price of common stock?

A

Parity Price of Common = Bond Price ÷ Conversion Ratio

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Q

Chapter 6 – Corporate Debt

What is the formula for the Parity Price of the convertible bond?

A

Parity Price of the Bond = Common Stock Price x Conversion Ratio

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