In general, when a convertible security is exchanged for common stock, the overall effect is which of the following?
I. Stock shares will decrease.
II. Earnings per share will decrease.
A) Only statement I is correct.
B) Only statement II is correct.
C) Both statements I and II are correct.
D) Nether statement I nor II is correct.

Question

In general, when a convertible security is exchanged for common stock, the overall effect is which of the following? 
I. Stock shares will decrease.
II. Earnings per share will decrease.
A) Only statement I is correct.
B) Only statement II is correct.
C) Both statements I and II are correct.
D) Nether statement I nor II is correct.

Quizplus · Accepted Answer

When a convertible security is exchanged for common stock, the number of shares increases, which typically leads to a decrease in earnings per share (EPS) because the same earnings are now spread over a larger number of shares.

In General, When a Convertible Security Is Exchanged for Common