A firm may prefer to issue a convertible bond, as opposed to issuing equity, because
I.a convertible issue sends a better signal to investors than an issue of common stock;
II.an announcement of a stock issue generates worries of overvaluation and usually depresses the stock price;
III.a convertible issue shows the management's willingness to take a chance that the stock price will rise enough to lead to conversion and also signals management's confidence in the future
A)I only
B)III only
C)I and II only
D)I, II, and III

Question

Quizplus · Accepted Answer

Convertible bonds are preferred over issuing equity for several reasons: they send a positive signal to investors, avoid the immediate dilution and negative perception associated with a stock issue, and demonstrate management's confidence in the company's future growth potential, which could lead to conversion.

A Firm May Prefer to Issue a Convertible Bond, as Opposed