GyanGramWith reference to Convertible Bonds consider the following statements: 1. As there is an option to exchange t…
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With reference to Convertible Bonds consider the following statements:
1. As there is an option to exchange the bond for equity, Convertible Bonds pay a lower rate of interest.
2. The option to convert to equity affords the bondholder a degree of indexation to rising consumer prices.
Which of the statements given above is / are correct?
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• Correct Answer: C
• Conversion option offers equity upside, so issuers pay lower coupon rates.
• Equity conversion provides indirect indexation against inflation if stock prices rise with general prices.
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