Convertible bonds may be exchanged for equity securities, which means that they have the potential to provide a higher return for investors if the underlying stock price increases. They do not necessarily have priority over other indebtedness or require security in the form of a mortgage, and they typically pay interest regardless of earnings.

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Convertible Bonds

Question 30

Multiple Choice

Convertible bonds

A) have priority over other indebtedness.
B) are usually secured by a first or second mortgage.
C) pay interest only in the event earnings are sufficient to cover the interest.
D) may be exchanged for equity securities.

Correct Answer: