Which of the following is true?

Question

Quizplus · Accepted Answer

As the price of common stock increases, the conversion value of a convertible bond increases, which is the value of the convertible bond if it is converted to common stock. This increase in conversion value means that the market price of the convertible bond will also increase, as investors will be willing to pay more for the option to convert their bond into valuable common stock. However, the conversion premium (the difference between the market price of the convertible bond and its conversion value) will decrease as the bond becomes more valuable. Therefore, option B is the correct answer.

Which of the Following Is True