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A bond is convertible into common stock for $20. If the company announces a 10% stock...

A bond is convertible into common stock for $20. If the company announces a 10% stock dividend, what is the new conversion price?

$18.00

$22.22

$33.33

$18.18

Solutions

Expert Solution

D) $18.18

Explanation:

Before the dividend was declared , conversion ratio is equal to 50 shares ( 1,000 / 20 = 50 ) . A 10% stock dividend would increase the number of shares on conversion to 55 . Now the new conversion price would be $18.18 (1,000 / 55 ) .

jeff jeffy answered 2 years ago
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