If a company's stock price is expected to increase substantially over the next few years, which of the following may entice potential bondholders to accept a lower coupon rate on the company's bonds?

Question

Quizplus · Accepted Answer

Convertibility is attractive to potential bondholders because it gives them the option to convert their bonds into a specified number of shares of the company's stock. If the stock price is expected to increase substantially, the opportunity to convert bonds into stock could lead to significant gains, making a lower coupon rate acceptable.

If a Company's Stock Price Is Expected to Increase Substantially