Why is a mortgage bond considered safer than a debenture?
Should the company declare bankruptcy and default on the bonds, mortgage bonds are backed by the value of the company’s land and buildings. Mortgage bonds are considered the least risky of corporate bonds, while debentures, which are backed only by the company’s promise to pay, are considered the most risky. 15.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” fo
