What are the primary advantages and disadvantages of convertible bonds?
Convertible bonds offer the advantage of conversion to shares of common stock, thus allowing an investor to participate in company earnings or stock price appreciation. However, as stock prices go up, so does the value of convertible bonds. Disadvantages include the callable feature and interest rate risk. Also, convertible bonds typically convert to fewer shares of common stock than could be purchased with the bond value. 16.List the unique characteristics of zero-coupon bonds. How can an investor avoid the annual taxation on the increase in the bond value? Bondholders many years ago submitted a “coupon” for their periodic interest payment. As the name implies, zero-coupon bonds pay zero periodic interest. Instead, the bonds are bought at a deep discount and the interest is paid when the bond reaches maturity, or the full face value of $1,000. Advantages of these bonds include low initial costs and the predictability of the return and future value at a given point in time. Disadvantag
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