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Unformatted text preview: calls the bond, the bondholders have the choice to take the cash or to convert the bond into shares. For example, a firm will issue bonds with a call price of 102, then if they call the bond, they pay shareholders $1,020, or the shareholders can convert their bond into equity. 3. So, under what circumstances should a firm call its convertible bonds? 1. Never call bonds less than the conversion price. This would transfer wealth from shareholders to bondholders unnecessarily. 2. Firms should not wait until the price of the bond raises substantially above the call price. If they do, bondholders can convert their bonds to shares and essentially be purchasing shares at a discount. 4. Why would a firm issue convertible bonds?...
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- Winter '10