The lower coupon is off-set by the provision which allows investors to convert their bonds to common stock. This is at a predetermined price and for a specified time period. If the stock price goes up, the investor can convert the debenture and then realize a capital gain. In the event the stock price doesn't rise, the bond owner continues to receive interest until maturity, at which time the principal will be repaid. Most investors who buy the convertible debentures hope the price of the company's shares will rise so the debentures can be converted into stock.
Corporations raise money by selling their bonds just like the government to the bond market.
Corporate bonds are rated, to establish an investment grading quality on the bond. Corporations raise money by selling their bonds just like the government to the bond market. Corporate bonds are rated, to establish an investment grading quality on the bond. The junk may yield several points more other corporate bond issues. The risk is higher because the ability of a company to make the interest payments on the bonds is often questionable and the assets involved leave little room for safety.