Question #67
Reading: Reading 27 Valuation and Analysis of Bonds With Embedded Options - Anwers
PDF File: Reading 27 Valuation and Analysis of Bonds With Embedded Options - Anwers.pdf
Page: 29
Status: Unattempted
Question
The primary benefit of owning a convertible bond over owning the common stock of a corporation is the:
Answer Choices:
A. bond has more upside potential
B. bond has lower downside risk
C. conversion premium. Explanation The straight value of the bond forms a floor for the convertible bond's price. This lowers the downside risk. The conversion premium is a disadvantage of owning the convertible bond, and it is the reason the bond has lower upside potential when compared to the stock. (Module 27.8, LOS 27.q)
No explanation available for this question.