1. Investors are unlikely to exercise their conversion option prematurely, as doing so would extinguish the time value of the conversion option embedded in the security. Despite this, if the convertible security structure allows the issuer the option to settle the conversion in cash, in full, or in part, the total liability of the convertible issue is deemed a short-term liability. The initial nonconversion period avoids this undesired detriment to the issuer’s current assets to current liability ratio.

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