7. Comparing bonds with warrants to convertibles Convertible debt and straight debt issued with warrants are similar securities, because both are debt securities that represent potential equity claims on the issuer's assets. In fact, convertible debt can be thought of as straight debt plus nondetachable warrants. However, several important distinctions do exist. Use the following table to indicate whether the characteristic listed refers to convertible bonds or to stock warrants: Convertible Bonds Characteristic Stock with Warrants These securities typically have a shorter maturity. These fixed-income securities are exchanged for common stock and removed as liabilities from the company's books. O These securities tend to have higher flotation costs. a | These securities tend to be issued by larger, less risky firms. If a firm does not grow as expected subsequent to convertible or bond-with-warrant issues, does that make it more or less likely that the securities will be converted or exercised? Less likely to be converted or exercised More likely to be converted or exercised