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Convertible Bond Warrant

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1) Article Review: Comparative usage of Bond-warrant and Convertible Bond Issues

When it comes to bond-warrant and also convertible bond, there are several features and characteristic that can be identified which give investor insight of how much does these two types of bond actually different. In order to identify the difference between these two types of bond, a normative analysis has been done. Based on this analysis, according to Lavely (1971), the author of “Comparative Usage of Bond-Warrant and Convertible Bond Issues”, it can be seen that bond-warrant have more advantages as compared to the other bond which is the convertible bond. These advantages cannot be found in convertible bond and furthermore it also benefits both the issuer …show more content…

For the first method that is by analyzing the issuer of both the bond-warrant and the convertible warrant in term of its financial characteristic, the main aim is to know the actual pattern that is similar and different between these two types of bonds issuer. By mentioning the pattern, the pattern that the author actually wants to see is the economic characteristic of both bond issuers that is common which lead them to issue such instrument. By doing this method, the author believe it might able to uncover the truth behind the reason why does the firms choose such instrument and not choose to issue the other one. However, after used this method, the author received a negative result which indicate that the pattern of economic characteristic showed by both issuer of bond-warrant and convertible warrant is different from each other. Thus, the author unable to relate and find the reason behind the decision made by the firms to issue the instrument they choose based on the economic …show more content…

This mean that even though the normative analysis assume that the bond-warrant is more advantageous as compared to convertible bond but this theory is unable to be practice in the real world if the bond-warrant is not demanded by investor. Which mean, even though the firm has a good product but if there is no one to buy it, then what is the point of selling it. For a firm to get a financing, it has to follow the preference of the investor. If not, then the firm unable to pool high amount of money to expand its business. However, it cannot be denied that normative analysis mention of how much does the bond-warrant gives benefit as compared to the convertible bond and this is true but there is one thing that the author and the normative analysis didn’t mention in this paper, which is about the disadvantages of both bond-warrant and convertible. Given only the advantages of both bond doesn’t actually determine the reason behind why investor choose to invest in such securities. It might be that the bond-warrant poses a high risk as compared to the convertible bond or it might be other disadvantages that influence the decision of the investor and the issuer. This question should be answered by the author in this paper. However, back to the main aim of this paper, in order increase the usage of bond-warrant, more

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