SIE practice questionmediumConvertible Bonds
An investor converts a bond into common stock. What effect does this have on the issuer?
- AIt increases the issuer’s debt
- BIt decreases the issuer’s outstanding debt✓ Correct answer
- CIt triggers a call provision
- DIt increases the coupon payments owed
Explanation
Why B — It decreases the issuer’s outstanding debt
Upon conversion, the bond is retired, reducing the issuer’s outstanding debt. It does not increase debt, coupon payments, or trigger a call provision.
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