Which of the following is true?

Question

Quizplus · Accepted Answer

As the price of common stock increases, the market price of a convertible bond and the conversion value increase. This is because the conversion value is the value at which the bond can be converted into equity, and as the price of the common stock increases, so does the value of the equity that the bond can be converted into. The market price of the convertible bond also increases as investors perceive it to be more valuable due to the higher potential conversion value. The conversion premium may decrease as a result, as it is the difference between the market price of the bond and the conversion value, but it is not necessarily a direct correlation with the price of the stock.

Which of the Following Is True