Conversion price is usually set _______ the prevailing market price of the common stock at the time the bond issue is sold.

Question

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Typically, the conversion price is set above the prevailing market price of the common stock at the time the bond issue is sold. This is because the convertible bond offers an attractive interest rate or coupon rate, and investors are willing to pay a premium for the option to convert the bond into equity in the future, especially if they believe the stock price will rise above the conversion price. Setting the conversion price above the current market price also reduces the risk of dilution for existing shareholders, as the convertible bond will only convert into a smaller number of shares if the stock price rises significantly above the conversion price.

Conversion Price Is Usually Set _______ the Prevailing Market Price