Its basic equity value is $1,000 (100 * $10 = $1,000). To calculate the dilutive effect of the options, first you note that the options are all "in-the-money" - their exercise price is less than the current share price.

When these options are exercised, there will be 10 new shares created - so the share count is now 110 rather than 100.

However, that doesn't tell the whole story. In order to exercise the options, we had to "pay" the company $5 for each option (the exercise price).

As a result, it now has $50 in additional cash, which it now uses to buy back 5 of the new shares we created.

So the fully diluted share count is 105, and the fully diluted equity value is $1,050. This gets confusing because of the different units involved. First, note that these convertible bonds are in-the-money because the company's share price is $100, but the conversion price is $50. So we count them as additional shares rather than debt.

Next, we need to divide the value of the convertible bonds - $10 million - by the par value - $1,000 - to figure out how many individual bonds we get:

$10 million / $1,000 = 10,000 convertible bonds.

Next, we need to figure out how many shares this number represents. The number of shares per bond is the par value divided by the conversion price:

$1,000 / $50 = 20 shares per bond.

So we have 200,000 new shares (20 * 10,000) created by the convertibles, giving us 1.2 million diluted shares outstanding.