A:

A. If all of the bonds are converted, the stockholders will benefit.

B. They depreciate when the stock rises in value.

C. They typically carry lower interest rates than non-convertible bonds.

D. They receive interest payments after convertible preferred stock in case of default.






Correct answer: C

Convertible bonds generally offer a lower yield compared to normal bonds that do not have the convertible option.



RELATED FAQS
  1. What is the difference between convertible and reverse convertible bonds?

    The difference between a regular convertible bond and a reverse convertible bond is the options attached to the bond. While ... Read Answer >>
  2. What is a 'busted' convertible bond?

    Learn about busted convertible bonds; these are hybrid securities with conversion prices significantly higher than the market ... Read Answer >>
  3. Why would a corporation issue convertible bonds?

    Discover how corporations issue convertible bonds to take advantage of much lower interest rates as a result of a conversion ... Read Answer >>
  4. Do convertible bonds have voting rights?

    Convertible bonds usually have no voting rights until they are converted. Even after conversion, they may not be granted ... Read Answer >>
  5. How is convertible bond valuation different than traditional bond valuation?

    Read about bond valuation, particularly the differences between how a traditional bond is valued and how a convertible bond ... Read Answer >>
Related Articles
  1. Investing

    Convertible Bonds: An Introduction

    Find out about the nuts and bolts, pros and cons of investing in bonds.
  2. Investing

    3 Best High-Yielding Convertible Bond ETFs (CWB, ICVT)

    Discover how convertible bond ETFs can offer investors growth and income while hedging fixed income portfolios in a rising rate environment.
  3. Investing

    The Top 6 Convertible Bond Funds for 2016

    Take a look at convertible bond mutual funds that are well-positioned heading into 2016, and why investors might consider a convertible fund portfolio.
  4. Investing

    Leverage Your Returns With A Convertible Hedge

    Find out how you can maintain your income stream by using this type of bond strategy.
  5. Investing

    Can a Bond ETF Work in a Rising Rate Environment?

    The CWB Convertible Securities ETF could be the perfect solution for a rising rate environment.
  6. Investing

    CWB: SPDR Barclays Convertible Secs ETF

    Read an in-depth analysis of the SPDR Barclays Capital Convertible Bond ETF, which tracks an index of high-growth potential convertible bonds.
  7. Investing

    Introduction to Convertible Preferred Shares

    These securities offer an answer for investors who want the profit potential of stocks but not the risk.
  8. Investing

    Convertible Bonds

    A convertible bond is a bond the investor can exchange for a specific amount of company stock at a later date. It combines a bond and a call option. The bondholder can benefit if there's an increase ...
  9. Investing

    3 Convertible Bond Mutual Funds to Avoid (CALBX, DLBCFX)

    CALBX,DAAIX,LBCFX: Learn about three convertible bond mutual funds with poor fundamentals and weak track records.
RELATED TERMS
  1. Convertible Bond

    A bond that can be converted into a predetermined amount of the ...
  2. Busted Convertible Security

    A convertible security that is trading well below its conversion ...
  3. Revertible

    Refers to a special kind of convertible corporate bond that automatically ...
  4. Deferred Equity

    A type of security, such as preferred shares or convertible bonds, ...
  5. Foreign Currency Convertible Bond - FCCB

    A type of convertible bond issued in a currency different than ...
  6. Premium Adjustable Convertible Security - PEACS

    A debt instrument that combines a coupon paying bond with the ...
Hot Definitions
  1. Down Round

    A round of financing where investors purchase stock from a company at a lower valuation than the valuation placed upon the ...
  2. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  3. Portfolio Investment

    A holding of an asset in a portfolio. A portfolio investment is made with the expectation of earning a return on it. This ...
  4. Treynor Ratio

    A ratio developed by Jack Treynor that measures returns earned in excess of that which could have been earned on a riskless ...
  5. Buyback

    The repurchase of outstanding shares (repurchase) by a company in order to reduce the number of shares on the market. Companies ...
  6. Tax Refund

    A tax refund is a refund on taxes paid to an individual or household when the actual tax liability is less than the amount ...
Trading Center