1- Suppose a Convertible Bond with a Face Value of $100 million is issued at Par. The fair value (i.e., Present Value of future cash flows) of the Debt Component at the date of issue is $80 million. What is the fair value of the Equity component?

a. Zero

b. $20 Million

c. $120 million

d. $180 million

e. None of these answers

2-: Suppose 20 Convertible Bonds with a face value each of $1,000 are issued at Par. Each Convertible Bond is convertible into 10 Ordinary Shares. Suppose the Convertible Bonds are converted into Ordinary Shares.

How many new Ordinary Shares will result from the conversion?

a. 10 Ordinary Shares

b. 200,000 Ordinary Shares

c. 600 Ordinary Shares

d. Zero Ordinary Shares

e. None of these answers