5. Financing with convertibles Just like any financing security, convertibles have certain advantages and disadvantages. Based on your understanding of using convertibles for financing, identify whether each of the features listed in the following table is an advantage or a disadvantage from an issuer's standpoint: Feature Advantage Disadvantage Convertibles allow investors to buy the company's shares at a certain strike price. Conversion usually takes place when the company's share price increases beyond the strike price. If a company needs capital and wants to issue new stock but the current stock price is undervalued, the company can use convertibles to sell stock at a predetermined price. If a company issues convertible securities because it wants equity capital and the stock price does not eventually increase, investors will not exercise the convertible, and the company will be left with debt. Considering the pros and cons of convertible securities, under which of the following two situations is a company likely to issue convertibles? When issuing new stock could have a negative signaling effect on investors When issuing new stock could have a positive signaling effect on investors