A convertible bond is often utilized
A) as a sweetener when selling debt.
B) to sell common stock at prices higher than those prevailing when funds are needed.
C) when there is no demand for straight debt.
D) all of these options are true.

Question

Quizplus · Accepted Answer

A convertible bond may be utilized as a sweetener when selling debt, as it provides the option for the investor to convert the bond into common stock of the issuing company, which can be advantageous to the investor if the company's stock price increases. Additionally, the ability to convert the bond into common stock may make the bond more attractive to investors who might not otherwise be interested in purchasing straight debt. Furthermore, if the company wants to sell common stock at prices higher than those currently prevailing, it may issue convertible bonds, allowing investors to convert their bonds into stock at a predetermined conversion price, thus providing an alternative method to sell equity to investors.

A Convertible Bond Is Often Utilized