Which of the Following Is Most Likely to Happen with a Convertible

question 82

Multiple Choice

Which of the following is most likely to happen with a convertible bond when the market price of the stock exceeds the conversion price? The stock does not pay a dividend.

• A) The bondholders will immediately convert their bonds to stock.
• B) The issuing company will call the bonds and the bondholders will redeem them for the call price.
• C) The issuing company will call the bonds and bondholders will convert them to common shares.
• D) Both the issuing company and the bondholders will wait for the bonds to reach their maturity date.

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Definitions:

Unrecognized Prior Service Cost

Refers to costs from past services not yet recognized in financial statements for pension plans.

Accrued/Prepaid Pension Cost

Expenses related to pension plans that have been incurred but not yet paid, or paid in advance of the period to which they apply.

Accumulated Other Comprehensive Income

A component of shareholders' equity that includes all changes in equity from non-owner sources, excluding net income.

Projected Benefit Obligation

A measure of the present value of future pension benefits owed to employees, calculated based on their expected future salary increases.