If the stock price rises substantially above the conversion price, an advantage to the corporation would be
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, the bondholders would be motivated to convert their bonds into common stock, which would decrease the outstanding debt of the corporation. Therefore, the corporation would not have to repay the debt and would have more equity in the company. This would be advantageous for the corporation. Option A and B are not beneficial to the corporation, and option D is incorrect as one option (C) is an advantage to the corporation.

If the Stock Price Rises Substantially Above the Conversion Price