This mitigates the risk of a decline in the bond

Info icon This preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: urchase at the sinking fund price (whereas call provisions generally allow the company to repurchase the entire issue at its discretion). a sinking fund provision makes a bond issue simultaneously more attractive to an investor (through the decreased risk of default at maturity) and less attractive (through the repurchase risk associated with the sinking fund price). If interest rates fall and bond prices rise, a firm will benefit from the sinking fund provision that enables it to repurchase its bonds at below­market prices. Investors should review the details of a sinking fund provision in a bond's indenture and determine their own preferences before investing their money into any corporate bond. 45 45 Characteristics of Bond Conversion rights A conversion right stated in the body of the indenture that allows the bondholder the right to convert the bond into a specified number of shares of common stock (of the same company) at a predetermined fixed price. Such bonds, called convertible bonds, typically have a lower coupon rate than no...
View Full Document

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern