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Sagot :
When convertible bonds are first issued
- the conversion price of the stock is higher than the market price.
- the coupon rate is lower than if the bond were not convertible.
Why are convertible bonds issued?
Convertible bonds are issued by businesses to reduce their debt's coupon rate and postpone dilution. The number of shares an investor will receive in exchange for a bond depends on its conversion ratio. If the stock price is higher than if the bond were to be redeemed, companies can force the conversion of the bonds.
What is a convertible bond?
An interest-bearing fixed-income corporate debt asset known as a convertible bond has the option of being converted into a predetermined number of shares of common stock or equity. During the bond's term, the conversion from bond to stock is possible at specific times and is often at the bondholder's option.
What benefits do convertible bonds offer?
- The interest expense reductions from convertible bonds can be substantial.
- Convertible bonds often have lower interest rate payments than straight corporate bonds.
- The conversion option gives investors the chance to profit from gains in stock price, so they accept the reduced interest payments. May 10, 2021.
learn more about convertible bonds here https://brainly.com/question/14954723
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