Ceteris paribus, the required interest rate of a callable bond will be higher than the interest rate on a convertible bond.

Question

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Callable bonds typically offer higher interest rates than convertible bonds because they carry higher risk for the investor; the issuer can redeem the bond before maturity, often when interest rates fall, forcing investors to reinvest at lower rates. Convertible bonds, offering the option to convert into equity, are more attractive to investors and thus can carry lower interest rates.

Ceteris Paribus, the Required Interest Rate of a Callable Bond