Question

Which of the following statements regarding convertible bonds is false?

Multiple Choice
Convertible bonds can be exchanged for a fixed number of shares of the issuing corporation’s stock.
Holders of convertible bonds have the potential to profit from increases in stock price.
Holders of convertible bonds can receive the par value if they hold the debt to maturity.
Holders of convertible bonds receive interest while the debt is held.
Holders of convertible bonds can choose how many shares of stock to receive at conversion

Answer 1

Holders of convertible bonds cannot choose the number of shares to receive at conversion; instead, this is determined by a fixed conversion ratio set in the bond's terms.

Step-by-step explanation:

The statement regarding convertible bonds that is false is that holders of convertible bonds can choose how many shares of stock to receive at conversion. Convertible bonds are indeed a type of debt instrument that can be converted into a predetermined number of shares of the issuing company's stock. They offer the bondholder the potential to profit from increases in the stock price while also providing interest payments during the period the bond is held. Upon maturity, these bonds can indeed be redeemed for their par value. However, the conversion ratio, which defines the number of shares the bond can be converted into, is fixed and stated in the bond's terms; it is not at the discretion of the bondholder to choose the number of shares.