The market value of a convertible bond will exceed the conversion value or straight bond value, whichever is greater, by an amount called the market premium. This premium exists because ________.
A) markets are efficient
B) buyers and sellers do not usually agree on the conversion value
C) purchasers expect future stock price movements to be positive
D) the straight bond value is close to the conversion value

Question

Quizplus · Accepted Answer

The market premium exists because purchasers expect future stock price movements to be positive, making the conversion option more valuable.

The Market Value of a Convertible Bond Will Exceed the Conversion