Convertible bonds, warrants, and other exotic bond features As the name suggests, convertible bonds allow the owner the option to convert the bonds into a fixed number of shares of common stock. Which of the following best describes the difference between a convertible bond and a warrant? a. Convertible bonds give the investor the option to exchange bonds for shares at a certain price, whereas warrants give the investor the option to buy shares at a certain price. b. Convertible bonds give the investor the option to buy shares at a certain price, whereas warrants give the investor the option to exchange bonds for shares at a certain price.

a. Convertible bonds give the investor the option to exchange bonds for shares at a certain price, whereas warrants give the investor the option to buy shares at a certain price.

Explanation:

A convertible bond is a debt security that has a fixed income and yields interest and can be converted to shares. It is attractive because it has stability of bonds and can have high returns of stocks.

Warrants on the other hand are derivatives that gives the option of buying or selling a security at a certain price before expiration. Price of the security is called excercise or strike price.

Warrants are generally issued by the company whose shares are bought.

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