Question

XYZ convertible debentures are convertible into 20 shares of XYZ Corporation common stock. If the bonds were selling in the market at $980, what would the common stock have to be selling at to be on parity?

a. $20
b. $45
c. $49
d. $50

Answer 1

The correct answer is option c. $49.

Step-by-step explanation:

When convertible debentures are on parity with the common stock, it means that the value of the debentures if converted into common stock equals the current market price of the common stock. To find the common stock price that would put the convertible debentures on parity, we divide the market price of the debentures by the number of shares they can be converted into.

For XYZ convertible debentures that are convertible into 20 shares, and are selling in the market at $980, the calculation would be $980 ÷ 20 = $49. Therefore, the common stock would need to sell at $49 per share to be on parity with the convertible debentures.