Question

Corporations issue convertible debt for two main reasons. One is the desire to raise equity capital that, assuming conversion, will arise when the original debt is converted. The other is

Answer 1

corporations can obtain financing at lower rates

Step-by-step explanation:

Convertible debts are a type of long term capital financing that has the option of converting the debt into stock or equity. Corporations issue convertible debts to balance equity and liabilities.

A convertible debt will usually have a lower interest because the holder of the debt has the option of converting it to stock. A conversion occurs after a certain period. Investors willingly opt for convertible debts as the conversion aspect makes them less risky. Companies will opt for them because they are less expensive in interest payments, hence a cheaper form of obtaining capital.