You want to own equity in a Russian oil ﬁrm, but the ﬁrm does not have traded stock. If it had ___________ outstanding you could purchase them and then trade them in for shares of stock.

Question

Quizplus · Accepted Answer

Convertible bonds are securities that can be converted into a specific number of shares of the issuer's common stock. By purchasing convertible bonds from the Russian oil firm, an investor can eventually trade them in for shares of stock when the conversion option is exercised. This allows the investor to own equity in the company without the firm having traded stock.

You Want to Own Equity in a Russian Oil ﬁRm