Which of the following statements is true about convertible bonds?

Question

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Firms that issue convertible bonds can do so at a lower interest rate than they would have to pay for straight bonds, because the option to convert to equity increases the value of the bond to the holder. A is incorrect because issuing convertible bonds does not increase the cash that the firm must use to make interest payments. B is incorrect because the conversion ratio is typically set so that the firm's stock price must appreciate by more than 5% before it is profitable for the holder to convert the bond to stock. D is incorrect because the typical issue of convertible bonds allows the holder of the bond to convert it to common stock, not preferred stock.

Which of the Following Statements Is True About Convertible Bonds