When Is the Best Time to Convert a Convertible Bond

question 32

Multiple Choice

When is the best time to convert a convertible bond to common stock?

• A)When the call price exceeds the conversion value
• B)After the conversion ratio decreases
• C)When the conversion value is below the pure bond value
• D)None of the above

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Definitions:

Interperiod Tax Allocation

The practice of distributing income tax expenses over different accounting periods to match taxes with the revenues they are associated with.

Book Income

The income reported by a company in its financial statements, differing from taxable income due to various adjustments.

Life Insurance Premiums

Regular payments made to an insurance company to maintain a life insurance policy.

Permanent Difference

Items that cause a difference between the tax base of assets or liabilities and their carrying amount in financial statements, affecting taxable income or taxes payable.