Issuing Convertible Bonds or Bonds with Warrants Is Useful for a Company

question 40

Multiple Choice

Issuing convertible bonds or bonds with warrants is useful for a company of unknown risk because

• A)the effects of risk are opposite on the two value components and tend to cancel each other out.
• B)if the firm is high risk, the option premium will be higher while the straight bond value is fixed.
• C)only risky companies issued these instruments.
• D)the equity value is dependent on current risks only, not the future risk at conversion.