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Why are convertibles and bonds with warrants typically offered with lower coupons than similarly rated straight...

Why are convertibles and bonds with warrants typically offered with lower coupons than similarly rated straight bonds?Why are convertibles and bonds with warrants typically offered with lower coupons than similarly rated straight bonds?

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Answer #1

The bondholder in case of convertibles bonds has the option to exchange the convertible bond into common stock shares at a fixed price and at his or her option.
Bonds with warrants are the type of options that allows the bondholder to buy the shares of the company at a stated price.

Both convertibles and bonds with warrants offer the bondholders the chance for capital gains (if stock price rises) as compensation to lower coupon rates. That is the reason why convertibles and bonds with warrants offer lower coupon rates.
Straight bonds with similar ratings offer no capital gains to the bondholders.

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