17.6k views
0 votes
After the initial offering, the bonds are trading in the secondary market at 105, while the stock is trading at $10. Which statements are TRUE?

User Mbwasi
by
4.6k points

1 Answer

2 votes

Answer:

B I and IV

Step-by-step explanation:

Each bond could be transformed into common stock at $10.50 par value. So the bond should be equivalent to the 95 shares that comes from

= $1,000 ÷ $10.50 per share

= 95 shares

Currently price of the bond is $1,050

Now each share price is

= $1,050 ÷ 95 shares

= $11.05

As the common stock is traded at $10 that represents the stock is less than parity and therefore there is no means to transform the shares

hence, B option is correct

After the initial offering, the bonds are trading in the secondary market at 105, while-example-1
User Mpriya
by
4.9k points