MENU
Which one of the following is a disadvantage of the use of convertible bonds as a form of financing?
Suggested Answer: C
Get Premium CMA Questions
as Interactive Web-Based Practice Test or PDF
Real Exam Format
Detailed Explanations
Instant Access
Get Your Practice Test
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.
28 comments · newest first
AD
Adrianna
11 months ago
I thought convertible bonds were always a good deal, this is surprising.
SH
Shad
11 months ago
Less restrictive covenants? That's actually a plus for investors!
LO
Lorrie
12 months ago
Wait, are you saying they can defer equity financing? That sounds risky.
AL
Aliza
12 months ago
I totally agree, that's a big downside!
CE
Cecilia
12 months ago
Convertible bonds usually have lower interest rates.
MI
Mica
1 year 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.
EV
Evangelina
1 year 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.
GR
Graham
1 year ago
I remember practicing a question about convertible bonds, and I think they can be tricky because of how they affect equity financing.
ST
Stephane
1 year 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.
JE
Jeniffer
1 year 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.
DE
Delisa
1 year 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.
BR
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.
MI
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!
RO
Rory
1 year ago
Just make sure to weigh the pros and cons before making any decisions!
SH
Sherron
1 year ago
Yes, it can definitely be a strategic advantage for companies looking to raise capital.
LU
Luisa
1 year ago
That's a good point! It can be a smart move to defer equity financing until the stock price is higher.
SH
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.
DO
Dorothea
1 year ago
C) Convertible bonds carry a lower interest rate at issuance than if the bond were not convertible.
YU
Yuki
1 year ago
B) Convertible bonds defer equity financing until the stock price is higher.
TA
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.
ED
Edgar
1 year ago
C) Convertible bonds carry a lower interest rate at issuance than if the bond were not convertible.
CA
Cammy
1 year ago
B) Convertible bonds defer equity financing until the stock price is higher.
BE
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.
EF
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?
HO
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.
TA
Tasia
2 years ago
But on the other hand, convertible bonds carry a lower interest rate at issuance, which can be beneficial for the issuer.
HA
Hailey
2 years ago
I agree with you, Catalina. If the investor doesn't convert, they miss out on potential gains from the stock price increasing.
CA
Catalina
2 years ago
I think the disadvantage is that the investor may choose not to convert the convertible bonds.