Convertible Bonds with a face value each of $1,000 are issued at Par. Each Convertible Bond is convertible into 20 Ordinary Shares. Suppose the Convertible Bonds are repurchased (i.e., repaid) at Par for Cash

How many new Ordinary Shares will result from the Repurchase of the Convertible Bonds for cash:

a. None of these answers

b. 600 Ordinary Shares

c. Zero Ordinary Shares

d. 10 Ordinary Shares

e. 200 Ordinary Shares

Q7: Suppose a firm issues a single bond with a face value of $100,000 which is Convertible into 10,000 Ordinary Shares with a Par Value of $1. The credit entry to “Share Premium – Conversion Equity” on the date of issue was for $20,000. Assume that the maturity date of the bonds has now arrived and the bonds will be converted into Ordinary Shares.

The Credit Entry to the “Share Premium – Ordinary Shares” account on the date of conversion will be for an amount of:

Q8: Suppose a firm issues a 1,000 Convertible Preference Shares for with a par value of $100 each. Each preference share is convertible into 5 Ordinary Shares with a par value of $5. The credit entry to “Share Premium – Conversion Equity” on the date of issue was for $200,000. Assume that the maturity date of the Convertible Shares has now arrived and the Convertible Preference Shares will be converted into Ordinary Shares.

The Debit Entry to the “Share Premium – Conversion Equity” account on the date of conversion will be for an amount of:

Q9: Suppose a Convertible Bond with a Face Value of $100 million is issued at Par. The fair value (i.e., Present Value of future cash flows) of the Debt Component at the date of issue is $80 million. What is the fair value of the Equity component?

a. Zero.

b. $20 Million.

c. $120 million.

d. $180 million.

e. None of these answers.

Q10: Suppose 20 Convertible Bonds with a face value each of $1,000 are issued at Par. Each Convertible Bond is convertible into 10 Ordinary Shares. Suppose the Convertible Bonds are converted into Ordinary Shares.

How many new Ordinary Shares will result from the conversion?

a. 10 Ordinary Shares.

b. 200,000 Ordinary Shares.

c. 600 Ordinary Shares.

d. Zero Ordinary Shares.

e. None of these answers.

Answer rating: 100% (QA)

Solution Q6 c Zero Ordinary Shares When a company repurchase the convertible bonds the resultant ordinary shares will be Zero since the company itself ... View the full answer