The longer it takes to overcome the capital gainsadvantage to the stock, the less attractive is a convertible bond.

Question

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A convertible bond allows the investor to convert their bond into stock at a certain price, which can be advantageous if the stock price increases. However, if it takes a long time for the stock price to increase enough to make the conversion worthwhile, then the advantage of the convertible bond is diminished. This is because the investor could have potentially earned more from simply holding onto the stock and benefiting from any capital gains.

The Longer It Takes to Overcome the Capital Gainsadvantage to the Stock