Which of the Following Statements Is False

question 32

Multiple Choice

Which of the following statements is false?

• A) A convertible bond can be thought of as a regular bond plus a special type of call option called a warrant.
• B) On the maturity date of the bond, the strike price of the embedded warrant in a convertible bond is equal to the face value of the bond divided by the conversion ratio-that is, the conversion price.
• C) Calling a convertible bond transfers the remaining time value of the conversion option from shareholders to bondholders.
• D) If the stock price is low so that the embedded warrant is deep out-of-the-money, the conversion provision is not worth much and the bond's value is close to the value of a straight bond-an otherwise identical bond without the conversion provision.