SIE practice questionmediumConvertible Bonds
A convertible bond provides the investor with:
- AGuaranteed principal repayment by the FDIC
- BHigher interest payments than nonconvertible bonds
- CInterest that is tax-exempt
- DThe option to exchange the bond for common stock✓ Correct answer
Explanation
Why D — The option to exchange the bond for common stock
Convertible bonds can be exchanged for the issuer’s common stock. They usually have lower yields, are not tax-exempt, and are not insured by the FDIC.
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