When the market price of a common stock rises above the conversion price, the convertible should always be converted immediately before it drops.

Question

Quizplus · Accepted Answer

This statement is not true. Whether or not a convertible should be converted when the market price of the common stock rises above the conversion price depends on various factors, such as the remaining time until maturity of the convertible, the volatility of the stock, the interest rates, and the investor's goals and risk tolerance. It is not always advisable to convert immediately as there may be better opportunities for returns or other reasons to hold onto the convertible.

When the Market Price of a Common Stock Rises Above