Hello Quick question on MC18 - converting loan stock into ordinary shares. "The market price of 10% convertible loan stock is £150 per £100 nominal. Ther conversion terms are 25 shares for every £100 nominal value of stock. What is the conversion premium if the market price of an ordinary share is 550p? The solution is 50p. I have tried to work out how to arrive at the solution but I'm a bit stuck! Thanks
So the £150 you spent on 100 nominal will convert to 25 shares. Giving a price per share of £150/25 = £6. On the market you would buy shares at £5.50 per share so conversion premium is £6 - £5.50 = 50p
