Iredell issued 5,000, $1,000 face value, 7% convertible bonds.

The previous sentence is trying to say that, On October 1, 2016, Iredell Company issued (sold) 5,000 convertible bonds with a face value (future value, future cash flow, future income stream) of $1,000, correct?

However, what does the 7% mean or stand for? Does this 7% signify the contract (or stated) interest rate, also called annual coupon interest rate (cpn)? Or, does the 7% signify the effective interest rate, also called market interest rate?

Iredell Company has 2,500,000 shares of common stock outstanding on December 31, 2015. An additional 500,000 shares of common stock were issued on April 2, 2016, and 250,000 more on July 2, 2016. On October 1, 2016, fredell issued 5,000, $1,000 face value, 7% convertible bonds. Each bond is dilutive and convertible into 40 shares of common stock. No bonds were converted into common stock in 2016. What is the number of shares to be used in computing basic earnings per share and diluted earnings per share, respectively, for the year ended December 31, 2016