Final answer:
Convertible bond interest rates tend to be lower compared to regular debt because of the option to convert the bonds into common stock. Regular debt, like corporate or government bonds, have higher interest rates.
Step-by-step explanation:
The interest rates for convertible bonds, which are a type of corporate bond, tend to be lower compared to regular debt. This is because convertible bonds offer investors the option to convert their bonds into a predetermined number of shares of the issuing company's common stock. The potential for capital appreciation through stock conversion reduces the need for higher interest rates.
On the other hand, regular debt, such as traditional corporate bonds or government bonds, does not offer the conversion feature. These bonds typically have higher interest rates to compensate investors for the risk associated with lending money to the issuer.
It's important to note that interest rates can vary depending on various factors such as the credit rating of the issuer, prevailing market conditions, and the duration of the bond.