Question

Firms generally do not call their convertibles unless the conversion value is greater than the call price.

A.True
B.False

Answer 1

Firms generally call their convertibles when the conversion value is greater than the call price.

Step-by-step explanation:

The statement is false. Firms generally call their convertibles when the conversion value is greater than the call price. When the conversion value is higher, it indicates that the stock price is above the conversion price, making it more beneficial for the firm to convert the bonds into equity. By doing so, the firm can take advantage of the higher stock price and potentially reduce its debt burden. Therefore, the conversion value being greater than the call price is often a trigger for firms to call their convertibles.