 The firms generally grant a call option on the bonds. The typical arrangement for calling a convertible bond are relatively simple. When a bond is called by the firm, the bond holder has two options. Either he can convert the bond into a common stock at the conversion ratio or the bond holder can surrender the bond and receive the call price in cash. Now in this situation having these two options what bond holder can do. Bond holder can go for conversion if the bonds conversion value is greater than the call price. So conversion is better than the surrender and if the bonds conversion value is lesser than the call price then surrender is better than the conversion. On the other side what is the option held with the firm or its financial managers. An optimal call policy can benefit the stock holders at the expense of the debt holders. So in this particular case a simple rule is that do whatever the bond holders do not want you to do. So we can see that there is a policy that maximizes shareholders value and minimizes bond holders value in the sense that the firm can call the bonds when its conversion value is equal to its call price. So this is the simple rule that may guide the firm in case of conversion of the bond. Now there is a puzzle that generally firms may delay calling their convertible bonds until the conversion value exceeds the call price. There is a reason behind this delay by the firms. The reason is that until bond holders respond the call the stock price could drop. This means that conversion value will be lower than the call price. So in that case the conversion option is out of money. The firm would be giving away money in this particular case. So this is the reason that most of the firms wait until the conversion value is substantially above the call price before triggering the call option.