Why Should a Convertible Bond Always Be Valued at More

question 87

Multiple Choice

Why should a convertible bond always be valued at more than its bond value or its conversion value up until maturity?

• A) The bond holder is receiving higher interest rates.
• B) The holder can decide later whether to own the bond or the stock.
• C) The conversion ratio may be decreased.
• D) The bond does not have to be given up to exercise the option.

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Definitions:

Insolvency

Refers to the financial condition where an entity can not meet its debt obligations as they come due.

Consecutive Years

Years that follow one after another without interruption.

Involuntary Bankruptcy

A legal process initiated by creditors to force a debtor into bankruptcy proceedings, in order to recoup debts owed by liquidating the debtor's assets.

Nonprofit Organizations

Organizations that operate for charitable, educational, cultural, scientific, or social welfare purposes rather than for profit.