UPSC PRELIMS · ECONOMICS · CONVERTIBLE BONDS
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?
Take a breath. Choose one. Press A–D on your keyboard if you like.
EXPLANATION
The equity-conversion option makes convertible bonds more attractive and can permit a lower coupon; conversion also provides indirect participation in equity-value changes.
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