A company issues a convertible bond.Management can essentially force conversion as long as:
A) The share price is higher than the conversion price
B) The share price is lower than the conversion price
C) The share price is equal to the conversion price
D) None of these answers are correct

Question

Quizplus · Accepted Answer

A convertible bond allows the investor to convert the bond into a predetermined number of shares of the issuing company's common stock. The conversion price is set at the time of issuance and represents the price at which the bondholder can convert the bond into common stock. If the share price of the issuing company is higher than the conversion price, the bondholder will convert the bond into common stock to take advantage of the price increase. Therefore, management can essentially force conversion by keeping the share price higher than the conversion price.

A Company Issues a Convertible Bond