Convertible bonds may dilute existing stockholders' interest in the corporation.This means

Question

Quizplus · Accepted Answer

Dilution occurs when the conversion of convertible bonds results in an increase in the number of shares outstanding, leading to a decrease in earnings per share and potential loss of voting power for existing stockholders. Option A is incorrect because convertible bonds generally have a lower interest rate than nonconvertible bonds. Option B is partially true, but only if the company issues additional shares to meet the conversion requirements. Option C is incorrect because convertible bonds generally do not have preference over other common shares.

Convertible Bonds May Dilute Existing Stockholders' Interest in the Corporation