The purchaser of a convertible issue sacrifices a portion of his or her interest return ________.
A) to raise temporarily cheap funds
B) due to the reduced risk of default in the future
C) when the call feature is exercised
D) to become a common shareholder in the future

Question

Quizplus · Accepted Answer

The purchaser of a convertible issue sacrifices a portion of his or her interest return in order to have the option to convert the bond into common shares in the future, thereby becoming a common shareholder. This potential for higher returns in the future is the trade-off for accepting a lower interest rate.

The Purchaser of a Convertible Issue Sacrifices a Portion of His