The XYZ Corporation's A-rated convertible debenture is currently selling for 90. If the bond's conversion price is $40, what is the parity price of the stock

$36

Explanation:

Step 1

We find the number of shares the bond is convertible into. This means we find the conversion ratio.

Conversion ratio formula =

Par value/ Bond conversion price

Par value = $1,000

Bond conversion price = 25

Conversion ratio = $1,000/25

= 40 shares.

Step 2

The parity price of the stock is calculated as:

Rate of the convertible debenture (in dollars/ Conversion ratio

In the above question, rate of convertible debenture = 90

converting to dollars = 90 × $10

= $900

Conversion ratio = 40 shares

Parity price of stock = $900/40 shares

= $36

answer; /// i do believe the correct answer is (possession utility);