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SIE: Debt Securities
SIE practice questionmediumConvertible Bonds

An investor converts a bond into common stock. What effect does this have on the issuer?

  1. AIt increases the issuer’s debt
  2. BIt decreases the issuer’s outstanding debt✓ Correct answer
  3. CIt triggers a call provision
  4. DIt increases the coupon payments owed
Explanation

Why BIt 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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