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.
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Finance allah shmoop shmoop what happens when your stock splits
Well for one thing it's not is embarrassing Is when
your pants split Trust me thie Answer Mohr pie pieces
that's What happens when your stock splits That's it well
here's the pie before the split This pie represents the
dessert company pastry holic synonymous And if you look carefully
with a big fat zoom in microscope while you khun
see ten million slices of this pie that's ten million
shares currently on the market trading that comprise the value
of this entire company Well the stock has done great
It has had a big fat rise in zooming to
one hundred dollars a share valuing the company at a
billion dollars How no that's not magic With the stock
market paying one hundred dollars a share for pastry hollis
anonymous multiplies that hundred dollars by the ten million shares
to get the market capitalization or market value of the
company Yep a cool bill in this case Well the
company wants to split the stock for four for one
to make it easier for less wealthy people toe by
at least one hundred shares And if people buy fewer
than a hundred shares While there's usually much more commission
they pay for not buying what's called around lot so
the company splits the stock for for one and now
instead of ten million tiny slices they have forty million
teeny tiny slices and no that's not by magic For
everyone who had one share before Now they have four
The stock price should fall on the day of the
split from one hundred bucks to twenty five bucks a
share and that's it pastry Hollis anonymous now has forty
million shares outstanding with wall street paying twenty five bucks
a share for them and voila the value of the
company or its market capitalization has not changed it's still
that same cool bill we started out with on ly
Now that cool bill is chopped up into smaller pieces
Wow counting has never made us so hungry for a
nice piece apply Is this gluten free that maybe tax 00:02:05.7 --> [endTime] free You got any tax free pies
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What are Convertible Bonds? Convertible bonds are bonds that have a provision to be converted into equity common shares at a predetermined strike p...