Asked by
Bryant Echols
on Nov 04, 2024
Verified
Floating-rate bonds are designed to ___________, while convertible bonds are designed to __________.
A) minimize the holders' interest rate risk; give the investor the ability to share in the price appreciation of the company's stock
B) maximize the holders' interest rate risk; give the investor the ability to share in the price appreciation of the company's stock
C) minimize the holders' interest rate risk; give the investor the ability to benefit from interest rate changes
D) maximize the holders' interest rate risk; give investor the ability to share in the profits of the issuing company
E) None of the options are correct.
Floating-rate Bonds
Bonds with a variable interest rate that adjusts periodically in accordance with a benchmark interest rate or index.
Convertible Bonds
Bonds that can be converted into a predetermined number of shares of the issuing company's stock at certain times during the bond's life, usually at the discretion of the bondholder.
Interest Rate Risk
The potential for investment losses due to fluctuations in interest rates, which can affect the value of interest-bearing assets like bonds.
- Assess the attributes and valuation of diverse bond forms: coupon, zero-coupon, callable, and convertible bonds.
Verified Answer
ML
Learning Objectives
- Assess the attributes and valuation of diverse bond forms: coupon, zero-coupon, callable, and convertible bonds.