A conversion feature in a bond has a greater chance of being exercised (to the detriment of the bondholder) if market interest rates have risen since the bond was issued.

Question

Quizplus · Accepted Answer

The statement is incorrect. A conversion feature in a bond has a greater chance of being exercised (to the benefit of the bondholder) if market interest rates have risen since the bond was issued. This is because the higher market interest rates would make the bond's coupon rate less attractive, and the holder may want to convert to equity instead.

A Conversion Feature in a Bond Has a Greater Chance