Products & RisksQuestion 16 of 125
Using a conversion ratio of 25 shares per bond, at what common stock price is a convertible bond trading at parity with a bond market price of $1,050?
a.$40.00
b.$26.25
c.$25.00
d.$42.00
Explanation
Parity price of the stock equals the bond's market price divided by the conversion ratio: $1,050 / 25 = $42.00. If the stock trades above $42, converting and selling shares would be worth more than the bond's current market price.
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