The more volatile the stock price as measured by beta or standard deviation of returns:

Question

Quizplus · Accepted Answer

Conversion premium is the amount by which the convertible bond's price exceeds its conversion value. The conversion premium is influenced by factors such as the stock's volatility, interest rates, and time to maturity. A higher stock price volatility, as measured by beta or standard deviation of returns, typically results in a higher conversion premium, as investors value the conversion feature more when the underlying stock is volatile. Therefore, choice A is the correct answer.

The More Volatile the Stock Price as Measured by Beta