Question 18

Ranger Inc. would like to issue new 20-year bonds. Initially, the plan was to issue straight bonds. If the company instead includes a provision that the bonds are convertible after 5 years at a 40% premium above the current stock price, how would this affect their required rate of return when it is issued?

Group of answer choices

The required rate of return would decline compared to a straight bond

The required rate of return could increase or decrease relative to a straight bond.

The required rate of return would increase compared to a straight bond

There is no reason to expect a change in the required rate of return.