Question

rudichuk inc. recently issued $3.1 million worth of 7 percent convertible debentures. each convertible bond has a face value of $1,000. each convertible bond can be converted into 21.6 shares of common stock anytime before maturity. the stock price is $38.25, and the market value of each bond is $1,180. what is the conversion ratio?

Answer 1

The conversion ratio for Rudichuk Inc. is 21.6, indicating that each $1,000 face-value bond can be converted into 21.6 shares of common stock.

Step-by-step explanation:

The conversion ratio is the number of shares that a bondholder can receive upon converting a convertible bond into a common stock. For Rudichuk Inc., each convertible bond with a face value of $1,000 can be converted into 21.6 shares of common stock. Therefore, the conversion ratio is 21.6. The conversion ratio does not depend on the stock price or the market value of each bond. Instead, it is simply a fixed number that indicates how many shares are received per bond when converted.