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A customer purchases a convertible bond at 90, convertible into the common stock at $40. The common stock is currently trading at $36. The company declares a 25% stock dividend. The bond trust indenture includes an anti-dilution clause. After the ex date for the stock dividend, the conversion price for this bond issue will be:________.

Respuesta :

Answer:

$32

Explanation:

Given:

Common stock price = $40

Current trading price = %36

Stock dividend = 25 % = 25/100 = 0.25

Conversion price = ?

Computation of conversion price :

Conversion price = Common stock price / (1 + Stock dividend)  

= $40 / (1 + 0.25)

= $40 / 1.25

Conversion price = $32

Therefore , new Conversion price is $32.

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