In which of the following situations does the value of a convertible bond exceed the value of straight debt or equity by the greatest amount?

Question

Quizplus · Accepted Answer

The value of a convertible bond is highest when the price of the stock is close to the conversion price because it offers both the upside potential of equity (due to the option to convert into stock) and the downside protection of a bond (fixed interest payments). This combination of features is most valuable when the stock price is near the conversion price, as the decision to convert or hold the bond for its fixed returns becomes more nuanced and potentially profitable.

In Which of the Following Situations Does the Value of a Convertible