SIE practice questionmediumConvertible bonds
What is a primary benefit to an issuer of convertible bonds?
- ANo credit risk for the issuer
- BAvoids dilution of ownership
- CAbility to pay a lower coupon rate✓ Correct answer
- DProtection against early redemption
Explanation
Why C — Ability to pay a lower coupon rate
Convertible bonds generally allow issuers to offer lower coupons due to conversion value. However, they may lead to dilution; credit risk and early redemption protection are not issuer benefits.
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