Many holders of convertible bonds will not convert when the firm's common stock price exceeds the conversion price because ________.
A) the common stock price may go up further and the firm cannot have any other mechanism to stop the bondholders from taking undue advantage of the conversion feature
B) they already have the market price benefit and may still receive fixed periodic interest payments
C) of the dilution of EPS
D) interest payments are tax deductible and it will affect their earnings

Question

Quizplus · Accepted Answer

Holders of convertible bonds receive fixed periodic interest payments, regardless of whether or not they convert. If the common stock price exceeds the conversion price, these bondholders may choose to continue receiving their fixed interest payments without converting because they already have the benefit of market price appreciation. Additionally, conversion would dilute the EPS, which can be another reason why bondholders may choose not to convert.

Many Holders of Convertible Bonds Will Not Convert When the Firm's