Adjustment in Conversion Terms

You own a convertible bond with the conversion term that you can exchange it for 40 shares of stock any time you want. When the stock climbs above $25/share, your thousand dollar bond would convert, and you'd get some kind of premium above the thousand dollar par value at which it's currently trading.

So the stock is at $26.82, and you're beginning to think about converting your bond and just selling the stock. But then, the stock splits two-for-one. Overnight, it goes from $26.82 to $13.41. You're bummed, because you thought you'd convert your bond, sell it, and buy a new piercing for your body's nether regions. Luckily for you, there is, in fact, an adjustment in conversion terms provision, such that if the stock splits, then the bond converts into 80 shares of that stock, not just 40, and you can go ahead and visit Piercings R Us down at the mall.