If bonds can be converted into common stock
A) they will sell at a lower price than comparable bonds without a conversion feature.
B) they will carry a higher interest rate than comparable bonds without the conversion feature.
C) they will be converted only if the issuer calls them in for conversion.
D) the bondholder may benefit if the market price of the common stock increases substantially.

Question

Quizplus · Accepted Answer

Bonds with a conversion feature allow the bondholder to convert their bond into common stock at a predetermined price and ratio. If the market price of the common stock increases substantially, the bondholder may benefit from converting their bond into common stock and then selling the stock at the higher price. Therefore, bonds with a conversion feature may be more attractive to investors, and may trade at a higher price than comparable bonds without the conversion feature.

If Bonds Can Be Converted into Common Stock