SIE Exam Question 936: Answer and Explanation

Question: 936

Which of the following is correct regarding convertible bonds?

• A. They typically offer lower coupon rates than non-convertible bonds issued for the same term by the same issuer.
• B. They typically offer higher coupon rates than non-convertible bonds issued for the same term by the same issuer.
• C. They typically offer the same coupon rates as non-convertible bonds issued for the same term by the same issuer.
• D. They are zero-coupon bonds issued at a discount to par.

Correct Answer: A

Explanation:

Because of their flexibility, convertible bonds typically offer lower coupon rates than non-convertible bonds issued for the same term by the same issuer.