Answered: Why do convertible bonds referred to as…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Why do convertible bonds referred to as potential common shares?

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Step 1

Bond: It can be defined as the instrument that carries a fixed rate of income and represents the borrowings made by the lender or investor to the borrower.

Step 2

Convertible bonds are the type of bonds that have the potential of being converted into a specified or fixed number of shares at a specified date, at the discretion of the holder. These bonds offer the investors with the privilege of being the holders of the common stock of the corporation which issued the bonds. These are often recognized as the hybrid securities which carry the features of both equity and debt. The investors can realize even higher yield through the conversion of these bonds.

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