If the stock price rises substantially above the conversion price, an advantage to the corporation would be that
A) the premium would decrease.
B) the floor price would offer the investor downside protection.
C) the bond would most likely be converted into common stock and the debt would not have to be repaid.
D) None of these options are advantages to the corporation.

Question

Quizplus · Accepted Answer

If the stock price rises substantially above the conversion price, it would incentivize the bondholder to convert the bond into common stock. This would result in the corporation not having to repay the debt and the bondholder becoming a shareholder. Therefore, option C is the only advantage to the corporation. The other options do not provide any direct benefit to the corporation.

If the Stock Price Rises Substantially Above the Conversion Price