If a bond lacks a conversion feature,
1) the bond would have a lower coupon
2) the bond would have a higher coupon
3) the price of the bond would be more responsive to changes in interest rates
4) the price of the bond would be less responsive to changes in interest rates
A)1 and 3
B)1 and 4
C)2 and 3
D)2 and 4

Question

​If a bond lacks a conversion feature,
​1) the bond would have a lower coupon
2) the bond would have a higher coupon
3) the price of the bond would be more responsive to changes in interest rates
4) the price of the bond would be less responsive to changes in interest rates
A)​1 and 3
B)​1 and 4
C)​2 and 3
D)​2 and 4

Quizplus · Accepted Answer

A bond without a conversion feature typically offers a higher coupon to compensate for the lack of conversion benefits. Additionally, such bonds are more sensitive to interest rate changes because they do not have the conversion option to provide a potential value cushion.

​If a Bond Lacks a Conversion Feature

If a Bond Lacks a Conversion Feature