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

question 38

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.

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Definitions:

Specialized Breeding

The process of selectively mating organisms to produce offspring with desired traits.

Low Reproductive Success

A condition where an organism has fewer offspring than the theoretical maximum, often due to environmental factors or genetic traits.

Extinct

Describes a species that no longer exists anywhere on Earth, having lost all its living members.

Bush Meat

Wild animals hunted for food in tropical countries, which can include various species of mammals, reptiles, and birds.