A holder of Rainbow Funds convertible bonds with a $1,000 par and a $1,100 price can convert the bond to 25 shares of common stock. The stock is currently priced at $36 per share. By what percent does the stock price have to rise to make conversion potentially attractive?

Question

Business

Brayden

19 June, 14:56

A holder of Rainbow Funds convertible bonds with a $1,000 par and a $1,100 price can convert the bond to 25 shares of common stock. The stock is currently priced at $36 per share. By what percent does the stock price have to rise to make conversion potentially attractive?

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Rhianna Valencia · Answer 1

22.22%

Explanation:

Currently Rainbow's stocks are priced at $36 per stock.

If the holder can convert his $1,100 bond into 25 stocks, that means that each stock should be worth at least $44 ( = $1,100 / 25).

So the current stock price should increase by $8 ( = $44 - $36) in order for a trade to be attractive, $8 represents a 22.22% increase ( = ($8 / $36) x 100)