Convertible Bonds, Warrants, and other Exotic Bond Features Assignment – Homework For You
April 15th, 2021
3. Convertible bonds, warrants, and other exotic bond features Aa Aa E
As the name suggests, convertible bonds allow the owner the option to convert the bonds into a fixed number of shares of common stock.
Innovative Energy LLC is a start-up company that just raised $100,000 to conduct a third-party feasibility study on its business model. The company agreed to treat the $100,000 investment as debt at 10% interest rate; however, the investor has the right to exchange the debt for common stock during the company’s next financing round. Which of the following terms best describes the $100,000 investment?
Convertible bond
Warrant
Consider the case of an investor, Nazim:
Nazim wants to include putable bonds in his investment portfolio. Nazim is likely to put the bonds when:
He has reinvestment options with higher yields
O He has reinvestment options with lower yields
Nazim also recently bought bonds with a clause stating that interest will be paid based on the inflation rate. When the inflation rate increases, the interest on the bonds will also increase. Nazim has invested in?
