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XYZ Corporation has a 6 1/2% convertible bond outstanding that is convertible into 40 shares of common stock. The bond is currently selling in the market at 85 ($850) and the common stock is selling at 21. The XYZ Corporation is offering its existing bondholders a new straight (nonconvertible) bond paying 6 1/2% that matures at the same time as the convertible bond. The effect of the successful completion of the proposal would be to:_________
a) Reduce interest costs
b) Reduce potential dilution
c) Have no effect on interest costs
d) Increase dilution

Respuesta :

Answer:

b) Reduce potential dilution

c) Have no effect on interest costs

Explanation:

Since in the question it is mentioned that the corporation is offering its existing bondholders for paying 6 1/2% this matured at the same time just like the convertible bond.

So here if the proposal is completed so the impact would be reduction in the potential dilution also it would not have impact on the effect on the interest rate and the same is to be considered