DNA Labs, Inc., has a $1,000 convertible bond outstanding that can be converted
ID: 2621569 • Letter: D
Question
DNA Labs, Inc., has a $1,000 convertible bond outstanding that can be converted into 46 shares of common stock. The common stock is currently selling for $27.80 a share, and the convertible bond is selling for $1,327.30
What is the conversion value of the bond? (Round your answer to 2 decimal places. Omit the "$" sign in your response.)
What is the conversion premium? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)
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(a)What is the conversion value of the bond? (Round your answer to 2 decimal places. Omit the "$" sign in your response.)
Explanation / Answer
a) Conversion Value = Stock price * no of shares
= 27.8 * (46) = $1278.8
b) Conversion premium = Conversion value of bond - face value
= 1278.8 - 1000 = $278.8
c) Conversion price = Value of bond/No of shares = 1327.3/46 = $28.85
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