3. 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?

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.

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.

Consider the case of an investor, Nazim:

Nazim wants to include putable bonds in his investment portfolio. Nazim is likely to put the bonds when:

He is in need of cash.

He expects to use the cash when the bond matures.

Nazim also recently bought bonds with a clause stating that interest will be paid based on the inflation rate. When the inflation rate increases, the interest on the bonds will also increase. Nazim has invested in .