A conversion feature allows

a. the bondholder to redeem the bond before the maturity date.

b. the corporation to convert the bond to other debt.

c. the bondholder to convert the bond to common stock.

d. the bondholder to demand increased collateral.

Answer: c. the bondholder to convert the bond to common stock.

Explanation: Convertible bonds are fixed-income debt security that can be converted into a predetermined number of common stock or equity shares while yielding interests, often at lower interest rates. A conversion feature of a convertible bond is defined as a provision that gives the bondholder the option, under certain conditions, to exchange (or convert) the bond for a specified number of shares of common stock. In other words, it allows the bondholder to convert the bond to common stock offering investors the potential for high returns if the price of the firm's common stock rises. This allows the firm to obtain financing at lower costs since investors are willing to accept lower rates of interest.