Sunrise Ltd. issued bonds with following terms: Issue price per bond ₹ 1,000 Coupon rate 2% and maturity period 2 years The investor will have option to convert the bonds into equity shares at ₹ 100 per share on maturity
CS Professional · Corporate Funding & Listings in Stock Exchanges · PYQS · June 2025
Sunrise Ltd. issued bonds with following terms: Issue price per bond ₹ 1,000 Coupon rate 2% and maturity period 2 years The investor will have option to convert the bonds into equity shares at ₹ 100 per share on maturity date, or alternatively claim full redemption. The market price per share on maturity date is ₹ 250. Mr. Sharma who subscribed 10 bonds desires to convert into equity:Which option will be more beneficial to him? Why?
Answer & Explanation:
If market price of equity shares is ₹250 per share, he will get an amount of ₹26000 (104 shares x ₹250 per share) in Option I; which is higher than ₹10400 which he is getting in option II. So, conversion option is better than redemption as he would get higher amount.
Topics: Corporate Funding
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