If a company's stock price is expected to increase substantially over the next few years, which of the following may entice potential bondholders to accept a lower coupon rate?

Question

Quizplus · Accepted Answer

Convertibility may entice potential bondholders to accept a lower coupon rate because it allows them to convert their bonds into stock, which could potentially increase in value. If the company's stock price is expected to increase substantially over the next few years, bondholders may be willing to accept a lower coupon rate in exchange for the option to convert their bonds into more valuable stock in the future.

If a Company's Stock Price Is Expected to Increase Substantially