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.

Jorge bought APJ Inc.s convertible bond at par ($1,000) with a yield of 3.25%. This bond had a conversion ratio of 25:1 at the price of $40 per share. If APJ Inc.s shares are currently trading at $28 per share, should Jorge convert his bond into shares?

Which of the following are most likely to have higher yields?

Convertible bonds

Nonconvertible bonds

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 expects to use the cash when the bond matures

He is in need of cash

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 .