When the conversion value of a convertible bond exceeds the call price of the bond, the issuing company is likely to force conversion by calling the bonds.

Question

Quizplus · Accepted Answer

When the conversion value of a convertible bond exceeds the call price, the issuing company is incentivized to call (or redeem) the bonds to reduce its interest expenses, as bondholders are likely to convert their bonds into equity to capture the higher value, thus allowing the company to replace debt with equity.

When the Conversion Value of a Convertible Bond Exceeds the Call