In convertible bonds, the value of the common stock price upon immediate conversion is the
A) put-call parity price.
B) conversion parity price.
C) cash equivalent price.
D) convertible price.
E) redemption price.

Question

Quizplus · Accepted Answer

The value of the common stock price upon immediate conversion is known as the conversion parity price. This is the price at which the bondholder can convert the bond into common stock. The conversion parity price is calculated using a formula that takes into account the current market price of the common stock, the conversion ratio, and the price of the convertible bond. This price represents the fair value for the stock that the bondholder is receiving upon conversion. Choices A, C, D, and E do not accurately describe the value of the common stock price upon immediate conversion.

In Convertible Bonds, the Value of the Common Stock Price