Question

Which of the following statements regarding convertible bonds subsequent to issuance is correct?

a. The conversion option has no effect on the company's diluted earnings per share.
b. The conversion option increases the company's debt-to-equity ratio.
c. The conversion option is exercised at the issuer's discretion.
d. The conversion option decreases the potential dilution of common stock.

Answer 1

The correct statement regarding convertible bonds subsequent to issuance is that the conversion option decreases the potential dilution of common stock.

Step-by-step explanation:

The correct statement regarding convertible bonds subsequent to issuance is d. The conversion option decreases the potential dilution of common stock. When convertible bonds are converted into common stock, additional shares are issued, which reduces the potential dilution of existing common stockholders. This means that the conversion option has a positive impact on the company's diluted earnings per share by reducing the dilution effect.