From the bondholder's point of view,the optimum time to convert a convertible bond is when the bond's conversion value is:
A)less than the call price,but greater than the face value.
B)greater than the call price,but less than the straight debt's value.
C)equal to the face value.
D)less than the straight debt's value,but greater than the call price.
E)greater than the both the call value and straight bond value on the call date.

Question

Quizplus · Accepted Answer

The optimum time for a bondholder to convert a convertible bond is when the conversion value (the value of the shares you would get by converting the bond into stock) is greater than both the call value (the amount the issuer pays to call, or buy back, the bond before maturity) and the straight bond value (the value of the bond if it were not convertible). This ensures the bondholder maximizes their investment return by converting to stock at a time when it offers more value than the alternatives.

From the Bondholder's Point of View,the Optimum Time to Convert