Question

A bond is convertible at 40. The bond is currently selling at 113 and the stock is selling at 45. The corporation calls the bond for redemption at 107. Which of the following actions would a bondholder most likely take?

a. Convert the bond into common stock
b. Sell the bond
c. Allow the corporation to call the bond at 107
d. Convert 25 shares of stock into one bond

Answer 1

A bondholder would most likely allow the corporation to call the bond at 107.

Step-by-step explanation:

A bondholder, in this case, would most likely c allow the corporation to call the bond at 107. When a bond is called for redemption by the corporation, it means that the bond will be repaid before its maturity date.

In this scenario, the corporation offers to redeem the bond at 107, which is a higher price than its current selling price of 113. Therefore, it would be in the bondholder's best interest to accept the corporation's offer and allow them to call the bond.