Which of the following characteristics are drawbacks of convertible bonds?
A) Downside protection is ineffectual if the bond is bought at a large premium over floor value.
B) Interest rates on the debt-instrument part of a convertible bond are frequently below market interest rates.
C) Conversion may be forced on the bondholder by call provisions on the convertible bond.
D) All of these are drawbacks of convertibles.

Question

Quizplus · Accepted Answer

All of the characteristics mentioned in options A, B, and C are potential drawbacks of convertible bonds. Downside protection may be negated by high premiums, interest rates may not be high enough, and there is a risk of conversion being forced upon the bondholder. Therefore, the best option is D.

Which of the Following Characteristics Are Drawbacks of Convertible Bonds