Why do convertible bonds and bonds with warrants have lower coupons than similarly rated bonds that do not have these features?

Why do convertible bonds and bonds with warrants have lower coupons than similarly rated bonds that do not have these features?

 

answer:

Owners of convertible bonds have the option to convert the bond into a fixed number of shares of common stock . Convertibles offer investors the chance to share in the upside if a company does well , so investors are willing to accept a lower coupon rate on convertibles than on an otherwise identical but nonconvertible bond .

Bonds with warrants are options that permit the holder to buy stock at a fixed price , thereby providing a gain if the price of the stock rises . Therefore as with convertibles , bonds with warrants have a lower coupon rate because it offers a chance to make gain if the price of the stock rises .

Add Comment
0 Answer(s)
  • Votes
  • Oldest

Your Answer

By posting your answer, you agree to the privacy policy and terms of service.