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Explain is the cost of capital lower on the convertible

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Suppose a company simultaneously issues $50 million of convertible bonds with a coupon rate of 10 percent and $50 million of straight bonds with a coupon rate of 14 percent. Both bonds have the same maturity. Does the fact that the convertible issue has the lower coupon rate suggest that it is less risky than the straight bond? Is the cost of capital lower on the convertible than on the straight bond? Explain.

Reference no: EM131103135

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