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Conversion ratio, Ex-dividend date

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1. What is the conversion ratio for each of the following bonds?

a.) A $1,000 par-value bond that is convertible into common stock at $43.75 per share.
b.) A $1,000 par value bond that is convertible into common stock at $25.00 per share.

2. Morris wishes to purchase shares of Deb, Inc. The company's board of directors has declared a cash dividend of $0.80 to be paid to holders of record on Wednesday, May 12.

a.) What is the last day that Morris can purchase the stock and still receive the dividend?
b.) What day does this stock begin trading ex-dividend?
c.) What change, if any, would you expect in the price per share when the stock begins trading on the ex-dividend day?

Please include formulas and calculations.

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Solution Summary

Conversion ratio calculation.
Ex dividend date and ex dividend price.

Solution Preview

1.  What is the conversion ratio for each of the following bonds?

Conversion ratio is the number of shares that each convertible bond can be converted into.

a.) A $1,000 par-value bond that is convertible into common stock at $43.75 per share.

Conversion ratio= $1000 / 43.75= 22.86

Answer: 22.86

b.) A $1,000 par value bond that is convertible into common ...

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