A ﬁrm has experienced a signiﬁcant decrease in share value.In retrospect, which of the following securities would have been best to have issued prior to the change in share value?
A)Convertible bonds.
B)Convertible preference share.
C)Straight debt.
D)Indifferent between A and B.
E)Indifferent between A, B, and C.

Question

Quizplus · Accepted Answer

Convertible bonds would have been the best choice because they allow the investors to convert their bonds into equity shares, which would have helped the firm to increase its share value. Additionally, if the firm's share value continued to decrease, the bondholders could have still received their interest payments and principal amount at maturity. Convertible preference shares would also be a good choice, but they are less common than convertible bonds and may have limited demand from investors. Straight debt would not have been a good choice because it would not have provided any equity upside potential for investors.

A ﬁRm Has Experienced a Signiﬁcant Decrease in Share Value