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conversion premium

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › conversion premium

  • This topic has 1 reply, 2 voices, and was last updated 11 years ago by John Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • May 29, 2014 at 4:50 am #171574
    aishaasad
    Member
    • Topics: 159
    • Replies: 185
    • ☆☆☆

    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.

    May 29, 2014 at 7:38 pm #171738
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54704
    • ☆☆☆☆☆

    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.

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