Which of the Following Is True Regarding Convertible Bonds

question 435

Multiple Choice

Which of the following is true regarding convertible bonds?

• A) A convertible bond's value will exceed the sum of the straight bond value and the conversion value unless the firm is in default or bondholders are forced to convert.
• B) When a convertible bond is converted into common stock, the company receives cash for the transfer.
• C) The floor price of a convertible bond is the greater of the straight bond value and the conversion value.
• D) The conversion value of a convertible bond is not affected by the value of the firm's underlying common stock.
• E) A distinction of convertible bonds is that the conversion privilege can be separated from the bond and sold by the owner.

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