Question

Amram Inc. can issue a 20-year bond with a 6% annual coupon at par. This bond is not convertible, not callable, and has no sinking fund. Alternatively, Amram could issue a 20-year bond that is convertible into common equity, may be called, and has a sinking fund. What most accurately describes the coupon rate that Amram would have to pay on the second bond, the convertible, callable bond with the sinking fund, to have it sell initially at par?

Answer 1

Answer:

b. It could be less than, equal to, or greater than 6%.

Explanation:

THIS ARE THE OPTIONS FOR THE QUESTION BELOW!

a. Exactly equal to 6%.

b. It could be less than, equal to, or greater than 6%.

c. Greater than 6%.

d. Exactly equal to 8%.

e. Less than 6%.

Convertible bonds can be regarded as one which can be converted to equity shares at a particular time, so in this case, Base on specific terms set the coupon rate can be equal, greater even less than 6%, talking of real world, the feature of the convertible could make the coupon rate to be probably less than 6%.