Question

Which of the following statements is most correct?

		Junk bonds typically carry a lower yield to maturity than investment grade bonds.
		A debenture is a secured bond which is backed by some or all of the firm's fixed assets.
		All else equal, subordinated bonds typically carry lower yields than mortgage bonds.
		All else equal, convertible bonds are less valuable than straight bonds
		None of the above statements is correct.

Answer 1

Answer - All else equal, convertible bonds are less valuable than straight line bonds.

Reason -

convertible bonds are bonds which have an option to convert the bonds into shares of the company. These bonds have a lower interest yield than the straight bond as convertible bonds carries lower risk than straight bonds because of the convertible factor in the bond.

Convertible bonds are beneficial for both shareholders and company. The shareholder have a benefit to convert the bonds into shares and the company by the same conversion removes the debt to the extent converted.

The straight bonds carries higher risk and interest than convertible bonds and have a higher value than convertible bonds.

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