What are Non-Convertible Bonds?
- The financial security cannot be redeemed early by the issuer except with the payment of a penalty.
- Bonds can be redeemed or paid off by the issuer prior to the bonds’ maturity date.
- Fixed-income instruments, usually issued by high-rated companies in the form of a public issue to accumulate long-term capital appreciation.
- The value of the assets of the Company or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.
Answer: c. Fixed-income instruments, usually issued by high-rated companies in the form of a public issue to accumulate long-term capital appreciation
Answer Explanation
As a fixed-income instrument, non-convertible bonds cannot be converted into equity shares of the issuing company. Corporations, governments, or other entities issue these bonds to raise capital through debt financing. Bondholders of non-convertible bonds do not have the option of converting their bonds into the company’s common stock, unlike convertible bonds.
Their interest rate is fixed, known as the coupon rate, and the bondholders receive regular interest payments until the bond matures.
There are several reasons why non-convertible bonds are preferred by investors who prefer stable income through interest payments over equity risk or capital appreciation potential. They are also less complicated than convertible bonds. In order to attract investors who prefer safety and steady income over higher risk and potential rewards associated with equities, high-rated companies with strong credit profiles often issue non-convertible bonds.
Why the other options are not correct
a. The financial security cannot be redeemed early by the issuer except with the payment of a penalty.
The description of this option is incorrect because it describes a call feature that applies to some traditional bonds, but it is not a defining characteristic of non-convertible bonds. A non-convertible bond may have a fixed maturity date, and its issuer may not redeem the bond before that date. However, the definition does not mention any specific penalty.
b. Bonds can be redeemed or paid off by the issuer prior to the bonds’ maturity date.
As with option A, this option is incorrect. There are some bonds that have a call feature that allows the issuer to redeem the bonds before the maturity date, but this feature does not apply to non-convertible bonds. Typically, non-convertible bonds have a fixed maturity date and cannot be redeemed before that date by the issuer.
d. The value of the assets of the Company or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.
The value of the Company’s assets or the value of the assets being disposed of, without taking into account any liabilities associated with them. The definition of non-convertible bonds does not relate to this option. The definition appears to refer to valuing the assets of a company, which is not relevant to non-convertible bonds.
Conclusion
Non-convertible bonds are fixed-income instruments issued by corporations or other entities to raise capital through debt financing. They cannot be converted into equity shares, unlike convertible bonds. It is typically issued by high-rated companies with strong credit profiles and is preferred by investors seeking stable income through regular interest payments.
For risk-averse investors, these bonds provide a steady income stream and are considered less complex than convertible bonds.
I am Bibisha Shiwakoti a final year BBS student from Janapremi College. I have completed my higher secondary education at Kalinchowk Secondary School.
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