Question

____________bonds are exchangeable at the option of the holder for the issuing firm's common stock. Bonds can be issued with warrants giving the holder the option to purchase the firm's stock for a stated price, thereby providing a capital gain if the stock's price rises.

a. Convertible
b. Perpetual
c. Putable)

Answer 1

Answer:

The correct answer is letter "A": Convertible.

Explanation:

A Convertible Bond is a bond which the lender may exchange at a later date for a particular amount of company stock. It combines a bond with a call option. The holder of a bond will profit if the value of the stock increases. A fixed formula determines the amount of stock a bondholder may purchase.