Homework Answers
The conversion value of the bond = Value that one gets when a bond is converted to shares
=20 * $40 =$800
i.e. on conversion , the value that one gets out of a bond is $800
The conversion premium is the difference between the market price of the bond and the conversion value. As the conversion value of $800 is less than the market price of the bond ($990) , the conversion premium is positive
Conversion premium = $990 -$800 = $190 which is the required conversion premium
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