Fundamentals of Corporate Finance Plus MyFinanceLab with Pearson eText -- Access Card Package
Fundamentals of Corporate Finance Plus MyFinanceLab with Pearson eText -- Access Card Package
3rd Edition
ISBN: 9780133576870
Author: Jonathan Berk, Peter DeMarzo, Jarrad Harford
Publisher: PEARSON
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Chapter 15, Problem 10P
Summary Introduction

Convertible bonds: Those bonds which can be converted into proportionate number of common stock are called convertible bonds. These bonds get converted into equity. The provision under convertible bonds gives the issuers of bonds authority to convert bonds in the form of equity shares.

Conversion provision: The provision in which in which bondholder is allowed to convert bonds into the equity shares is called conversion provision. The bonds are converted into equity shares on the basis of conversion ratio. The conversion ratio is the number of shares that will be received after the conversion of convertible bonds.

Conversion ratio: The conversion ratio is the number of shares that will be received after the conversion of convertible bonds. It is calculated diving face value of bond by conversion price of bond.

To Determine: Conversion ratio to convert the bonds into the equity at the end of the year.

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