otherwise similar straight debt because convertibles are less risky than straight
At the time it is issued, a convertible's conversion (or exercise) price is generally
set equal to or below the underlying stock's price.
For equilibrium to exist, the expected return on a convertible bond must
normally be between the expected return on the firm's otherwise similar
straight debt and the expected return on its common stock.
The coupon interest rate on a firm's convertibles is generally set higher than the
market yield on its otherwise similar straight debt.
Which of the following statements concerning warrants is correct?