Which of the following characteristics are drawbacks of convertible bonds?
A) Downside protection has minimal effectiveness 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 options are drawbacks of convertibles.

Question

Quizplus · Accepted Answer

All of these options are drawbacks of convertible bonds. Downside protection may not be effective if the bond is bought at a premium, the interest rates on the debt instrument may be lower than market rates, and the bondholder may be forced to convert due to call provisions.

Which of the Following Characteristics Are Drawbacks of Convertible Bonds