Which of the following is true?

Question

Quizplus · Accepted Answer

As the price of common stock increases, the conversion value of a convertible bond also increases because the bondholder can convert the bond into a larger number of shares at the higher stock price. This increase in conversion value generally leads to an increase in the market price of the convertible bond. The conversion premium, on the other hand, may or may not increase depending on the specific terms of the bond. The conversion premium is the difference between the market price of the convertible bond and its conversion value, and it can decrease if the market price of the bond increases more than the conversion value.

Which of the Following Is True