Suppose a company issues two bonds, identical except that Bond C is convertible, but Bond D is not. Which bond will have the higher yield to maturity?
A) Bond C
B) Bond D
C) Neither, because both bonds will have identical values.

Question

Quizplus · Accepted Answer

Bond D will have a higher yield to maturity because it compensates for the lack of the conversion feature present in Bond C. Convertible bonds (Bond C) typically offer lower yields to maturity compared to similar non-convertible bonds (Bond D) because they also provide the additional value of the option to convert into equity.

Suppose a Company Issues Two Bonds, Identical Except That Bond