Convertible bonds decrease in value whenever the price of the company's stock increases.

Question

Quizplus · Accepted Answer

This statement is false. Convertible bonds are a hybrid security that combines features of both bonds and stocks. As the price of the company's stock rises, the value of the conversion option embedded in the convertible bond also increases. This, in turn, can cause the value of the convertible bond to increase, as the bondholder has the option to convert the bond into stock at a more favorable price. Therefore, convertible bonds can actually increase in value as the stock price rises, unlike traditional bonds which decrease in value as interest rates rise.

Convertible Bonds Decrease in Value Whenever the Price of the Company's