SIE practice questionmediumConvertible Bonds
Why do convertible bonds typically offer lower yields than comparable non-convertible bonds?
- ABecause they are higher risk
- BBecause they have call features
- CBecause they offer conversion potential to equity✓ Correct answer
- DBecause they have longer durations
Explanation
Why C — Because they offer conversion potential to equity
Convertible bonds allow holders to participate in stock price increases; this equity upside allows issuers to offer lower yields. They are not necessarily riskier or longer duration.
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