IMANET CMA Exam - Topic 5 Question 61 Discussion

Actual exam question for IMANET's CMA exam

Question #: 61
Topic #: 5

Which one of the following is a disadvantage of the use of convertible bonds as a form of financing?

ALess restrictive covenants in bond indentures would usually be more acceptable to investors in convertible bonds than to investors in nonconvertible bonds.

BConvertible bonds defer equity financing until the stock price is higher.

CConvertible bonds carry a lower interest rate at issuance than if the bond were not convertible.

DThe investor may choose motto convert the convertible bonds.

Show Suggested Answer

Suggested Answer: C

Decentralization results in greater speed in making operating decisions because they are made by lower-level managers instead of being referred to top management. The quality of operating decisions should also be enhanced, assuming proper training of managers, because those closest to the problems should be the most knowledgeable about them.

by Kirk at Nov 18, 2022, 04:00 PM

Limited Time Offer

25%

Off

Get Premium CMA Questions as Interactive Web-Based Practice Test or PDF

Contribute your Thoughts:

Submit Cancel

Adrianna

7 months ago

I thought convertible bonds were always a good deal, this is surprising.

upvoted 0 times

...

Shad

7 months ago

Less restrictive covenants? That's actually a plus for investors!

upvoted 0 times

...

Lorrie

7 months ago

Wait, are you saying they can defer equity financing? That sounds risky.

upvoted 0 times

...

Aliza

7 months ago

I totally agree, that's a big downside!

upvoted 0 times

...

Cecilia

7 months ago

Convertible bonds usually have lower interest rates.

upvoted 0 times

...

Mica

8 months ago

I feel like option C makes sense since investors might expect a lower return with convertibles, but I can't recall the exact details.

upvoted 0 times

...

Evangelina

8 months ago

I'm leaning towards option B because deferring equity financing seems like a downside, but I could be mixing it up with another topic.

upvoted 0 times

...

Graham

8 months ago

I remember practicing a question about convertible bonds, and I think they can be tricky because of how they affect equity financing.

upvoted 0 times

...

Stephane

8 months ago

I think the disadvantage might be related to the lower interest rates, but I'm not entirely sure if that's the main issue.

upvoted 0 times

...

Jeniffer

8 months ago

I feel pretty confident about this one. Based on my understanding of the Expressway and authentication processes, I think the two correct elements are username and password. I'll select those options and move on.

upvoted 0 times

...

Delisa

8 months ago

Okay, I think I've got this. The key is that the Finance and Sales analysts should not be able to see each other's services. So the roles need to be set up to enforce that separation. Let me go through the options and see which one best accomplishes that.

upvoted 0 times

...

Brent

1 year ago

The investor may choose not to convert the convertible bonds? What kind of investor would do that? That's like refusing free money.

upvoted 0 times

...

Minna

1 year ago

Deferring equity financing until the stock price is higher? That's genius! Why didn't I think of that? I'm going to be a millionaire!

upvoted 0 times

Rory

11 months ago

Just make sure to weigh the pros and cons before making any decisions!

upvoted 0 times

...

Sherron

11 months ago

Yes, it can definitely be a strategic advantage for companies looking to raise capital.

upvoted 0 times

...

Luisa

12 months ago

That's a good point! It can be a smart move to defer equity financing until the stock price is higher.

upvoted 0 times

...

Sharan

1 year ago

Less restrictive covenants? That's like saying 'Hey, we trust you not to run this company into the ground.' I'm not falling for that one.

upvoted 0 times

Dorothea

12 months ago

C) Convertible bonds carry a lower interest rate at issuance than if the bond were not convertible.

upvoted 0 times

...

Yuki

12 months ago

B) Convertible bonds defer equity financing until the stock price is higher.

upvoted 0 times

...

Tamie

1 year ago

A) Less restrictive covenants in bond indentures would usually be more acceptable to investors in convertible bonds than to investors in nonconvertible bonds.

upvoted 0 times

...

Edgar

1 year ago

C) Convertible bonds carry a lower interest rate at issuance than if the bond were not convertible.

upvoted 0 times

...

Cammy

1 year ago

B) Convertible bonds defer equity financing until the stock price is higher.

upvoted 0 times

...

Beckie

1 year ago

A) Less restrictive covenants in bond indentures would usually be more acceptable to investors in convertible bonds than to investors in nonconvertible bonds.

upvoted 0 times

...

Effie

1 year ago

Convertible bonds carry a lower interest rate at issuance? Sounds like a pretty sweet deal to me. Where do I sign up?

upvoted 0 times

...

Horace

1 year ago

Wait, the investor may choose to convert the convertible bonds? That's like saying I can choose to not use a winning lottery ticket. This question is as clear as mud.

upvoted 0 times

...

Tasia

1 year ago

But on the other hand, convertible bonds carry a lower interest rate at issuance, which can be beneficial for the issuer.

upvoted 0 times

...

Hailey

1 year ago

I agree with you, Catalina. If the investor doesn't convert, they miss out on potential gains from the stock price increasing.

upvoted 0 times

...

Catalina

1 year ago

I think the disadvantage is that the investor may choose not to convert the convertible bonds.

upvoted 0 times

...