Which of the Following Statements About Convertibles Is Most CORRECT

question 47

Multiple Choice

Which of the following statements about convertibles is most CORRECT?

• A)The coupon interest rate on a firm's convertibles is generally set higher than the market yield on its otherwise similar straight debt.
• B)One advantage of convertibles over warrants is that the issuer receives additional cash money when convertibles are converted.
• C)Investors are willing to accept a lower interest rate on a convertible than on otherwise similar straight debt because convertibles are less risky than straight debt.
• D)At the time it is issued, a convertible's conversion (or exercise) price is generally set equal to or below the underlying stock's price.
• E)For equilibrium to exist, the expected return on a convertible bond must normally be between the expected return on the firm's otherwise similar straight debt and the expected return on its common stock.

---

Definitions:

Dual Processing

The principle that our mind operates on two levels simultaneously, conscious and unconscious processing.

Unconscious Inferences

Unconscious inferences are judgements or decisions made without conscious awareness, often based on prior experiences and knowledge.

Visual Distraction

Anything in the visual field that can divert attention away from the intended focus.

Chatting Passengers

Individuals engaged in conversation while traveling in a vehicle, potentially affecting the driver's focus or contributing to the social atmosphere of the journey.