XYZ convertible debentures can be converted into how many shares of XYZ Corporation common stock?

XYZ convertible debentures can be converted into how many shares of XYZ Corporation common stock?

• A. 10 shares
• B. 15 shares
• C. 20 shares
• D. 25 shares

Answer: (C)

The number of shares into which XYZ convertible debentures can be converted is determined by the conversion ratio specified in the terms of the debenture. This ratio indicates how many shares of common stock an investor will receive for each debenture upon conversion. In this case, the answer indicates that each debenture can be converted into 20 shares of common stock. This means that if an investor holds one debenture, they can exchange it for 20 shares of XYZ Corporation's common stock. This feature provides investors with the potential to benefit from an increase in the stock's market price, while also offering the fixed income characteristics of a bond until conversion is desired. Understanding the conversion ratio is critical for investors, as it affects their total return on investment. By converting into shares, investors can participate in the company's equity growth beyond the fixed income generated from the debenture.

The number of shares into which XYZ convertible debentures can be converted is determined by the conversion ratio specified in the terms of the debenture. This ratio indicates how many shares of common stock an investor will receive for each debenture upon conversion.

In this case, the answer indicates that each debenture can be converted into 20 shares of common stock. This means that if an investor holds one debenture, they can exchange it for 20 shares of XYZ Corporation's common stock. This feature provides investors with the potential to benefit from an increase in the stock's market price, while also offering the fixed income characteristics of a bond until conversion is desired.

Understanding the conversion ratio is critical for investors, as it affects their total return on investment. By converting into shares, investors can participate in the company's equity growth beyond the fixed income generated from the debenture.