What happens in the case of a bond selling for $1,000 that can be converted to 20 shares of stock that are currently selling for $55 per share?
A) All the bondholders will choose to convert.
B) The stock will go down to $50 per share.
C) The bond's price will go down to $900.
D) Some of the bondholders will choose to convert.

Question

Quizplus · Accepted Answer

The conversion value of the bond is $1,100 (20 shares x $55), which is higher than the bond's current price of $1,000, making conversion attractive to bondholders.

What Happens in the Case of a Bond Selling for $1,000