When a Company Has a Convertible Bond in Its Capital

question 72

Multiple Choice

When a company has a convertible bond in its capital structure,

• A) it can reduce its debt-to-equity ratio by calling the bond.
• B) there is no effect on the firm's earnings per share.
• C) there is no advantage to the firm in forcing conversion of the bonds.
• D) all of these.

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Definitions:

Relatively Inelastic

A situation where a change in the price of a good or service causes a comparatively smaller change in the quantity demanded or supplied.

Necessities

Goods and services that are essential for survival, such as food, shelter, and healthcare, often characterized by inelastic demand.

Luxuries

Goods or services that are considered non-essential but are desired for their ability to provide comfort, convenience, or pleasure.

Elasticity Of Supply

A measure of how much the quantity supplied of a good responds to a change in the price of that good.