Question

if the market price of common stock increases substantially, bondholders with convertible bonds benefit. convertible bonds can be converted into common stock at the option of the issuing company. bondholders with convertible bonds receive interest on the bonds until conversion. convertible bonds sell at a higher price and pay a lower rate of interest than those without the conversion option.

Answer 1

Answer:

if the market price of common stock increases substantially,

bondholders with convertible bonds benefit.

Explanation:

A convertible bond is a fixed interest debt security.  The number of common shares into which it can be converted is predetermined at the issuance date. While the conversion can be done at certain time in the life of the bond, the decision to convert is usually at the discretion of the bondholder.  As investors, bondholders opt to convert when it would be most profitable.  This happens when the market price of the common stock increases.