A convertible bond has a face value of $1,000 and a conversion ratio of 50. This bond will sell at a premium when which of the following occurs?

Question

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A convertible bond will sell at a premium when market rates fall below the bond's coupon rate because its fixed income component becomes more attractive relative to new bonds. Additionally, it will sell at a premium when the firm's stock sells for more than $20 per share because the conversion ratio of 50 means the bond can be converted into stock valued at more than its face value, making the conversion feature more valuable.

A Convertible Bond Has a Face Value of $1,000 and a Conversion