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Forums › Ask CIMA Tutor Forums › Ask CIMA F2 Tutor Forums › Chapter 3 Illustration 3/pg 61 study text Kaplan compund instrument
Can you help me understand what is the logic behind the calculation in the 3rd step (conversion of the bond) in Illustration 3/page 64 study text kaplan- they say like this:
“the conversion terms sre two 25c shares for every $1, so $50m x 2 = $100 m shares which have a nominal value of $25m” why do they multiply with 2 and not with 2.25 ? How they get to $25m nominal value?
thanks a lot.
Hi,
It is a bit confusing but I’d think of it as follows:
Two shares are issued for every $1 owed – so $50m is owed so we will issue 100 million shares ($50m/$1 x 2 shares).
Each share has a nominal value of 25c – so the nominal value of the 100 million shares issued is $25 million (100 million shares x $0.25 nominal value)
Hope that clears it up for you.
Thanks
Chris