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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › conversion premium
Hello Sir
can you plz explain how to calculate the conversion premium.
The current market price of company is $2.4
KB Co might raise the $5,040,000 required by means of an issue of
convertible loan notes at par, with a coupon rate of 6%. The loan notes would be redeemable in seven years’
time. Prior to redemption, the loan notes may be converted at a rate of 35 ordinary shares per $100 nominal.
Required
(i) Explain the term conversion premium and calculate the conversion premium at the date of issue
implicit in the data given.
The conversions premium is the difference between the current market value of the debt, and the current value of the shares to which it could later be converted.
There is an example showing this on page 71 of our free Course Notes.