- 5 Marks
FM – MAY 2019 – L2 – Q2c – Sources of finance: debt
Explain convertible debt and its advantages over bank loans with similar maturity.
Question
If an existing public company chooses to issue shares, the financial market usually interprets this as a sign that the company’s share price is somewhat overvalued. To avoid this negative impression, a company may choose to issue convertible bonds, which bondholders are likely to convert to equity anyway should the company continue to do well.
Required:
Explain convertible debt and identify FOUR (4) attractions to a company of convertible debt compared to a bank loan of a similar maturity as a source of finance. (5 marks)
Find Related Questions by Tags, levels, etc.
- Tags: Capital structure, Convertible debt, Corporate finance, Financing strategies
- Level: Level 2
- Topic: Sources of finance: debt
- Series: MAY 2019
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