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A disadvantage of investing in convertible securities is the conversion premium. Advantages of investing in convertible...

A disadvantage of investing in convertible securities is the conversion premium. Advantages of investing in convertible securities include all of the following EXCEPT:

A. Reduces downward risk

B. Potential for price appreciation

C. Opportunities for leverage better than with common stock

D. Higher current/ promised yields than straight debt obligations

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Answer #1

Advantages of investing in convertible securities include all of the following EXCEPT D. Higher current/ promised yields than straight debt obligations.

Convertible securities have promised yields less than straight debt obligations, Because, we are getting call option along with bond. Therefore we have to pay cost for call option we are getting and so convertible securities generally have lower promised yields compared to straight debt obligations since cost of call is adjusted in promised / current yield.

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