Issuing convertible bond is better than issuing equity by a firm 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 stock price.
III. a convertible issue shows the management's willingness to take chance that the stock price will rise enough to lead to conversion 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

Issuing convertible bonds can signal positive future prospects (I), avoid negative signals associated with equity issuance (II), and demonstrate management's confidence in future stock price increases (III).

Issuing Convertible Bond Is Better Than Issuing Equity by a Firm