Converting a convertible security is beneficial when the market price of the common stock into which it can be converted is greater than its conversion price.

Question

Quizplus · Accepted Answer

When the market price of the common stock into which a convertible security can be converted is greater than its conversion price, the holder of the security can benefit by converting it into common stock and selling it at a higher price. This is because the value of the convertible security will also increase as the price of the underlying common stock goes up. Therefore, converting a convertible security can be advantageous when the market price of the common stock is higher than the conversion price.

Converting a Convertible Security Is Beneficial When the Market Price