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

Question

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The attractiveness of a convertible bond lies in its ability to be converted into a specified number of shares of the issuing company's stock, usually at a premium to the current stock price. If the stock appreciates significantly, the bondholder can benefit from the capital gains by converting the bond into stock. However, if it takes a long time for the stock to appreciate enough to overcome the capital gains advantage (i.e., the premium paid for the convertible feature), the convertible bond becomes less attractive compared to other investments that could potentially offer higher returns in the same period.

The Longer It Takes to Overcome the Capital Gains Advantage