The conversion feature, which can be part of either a bond or preferred stock, permits a firm to raise additional funds at some point in the future by selling common stock, thereby shifting the company's capital structure to a less highly levered position.

Question

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The conversion feature allows the holder of the convertible bond or preferred stock to convert their holdings into a predetermined number of shares of the issuing company's common stock, not the company to raise additional funds.

The Conversion Feature, Which Can Be Part of Either a Bond