CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

When bonds with warrants are issued, the reported interest expense will be ______

A. lower than that of the convertible bond issued at the same price.
B. lower than that of the non-convertible bond issued at the same price.
C. the same as that of the convertible bond issued at the same price.
Correct Answer: B

When bonds are issued with warrants, their proceeds are allocated between the liability and equity. This usually causes the bonds to be issued at a discount. Thus, the value of the liability will be lower, which will cause the interest expense to be lower than that of non-convertible bonds.

User Contributed Comments 5

User Comment
danlan Warrant is similar to call option, convertible is conversion to equity. Conversion feature is ignored, means it's treated as liability, but the feature affects bond price though.
hizmo option is issued by 3rd party. warrant is issued by co.
cahiz84 Bonds with warrants requires less yield
johntan1979 Sweeteners to "trick" investors
davcer Remember the eps calculations, with warrants you should include the interest in the numerator
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