With reference to Convertible Bonds, consider the following statements: 1. As there is an option to exchange the bond for equity, Convertible Bonds pay a lower rate of interest. 2. The option to convert to equity affords the bondholder a degree of indexation to rising consumer prices. Which of the statements given above is/are correct?

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UPSC Question: With reference to Convertible Bonds, consider the following ...

With reference to Convertible Bonds, consider the following statements:

As there is an option to exchange the bond for equity, Convertible Bonds pay a lower rate of interest.
The option to convert to equity affords the bondholder a degree of indexation to rising consumer prices. Which of the statements given above is/are correct?