What are unsecured notes? Why would they carry a relatively high interest rate? What are convertible...

What are unsecured notes? Why would they carry a relatively high interest rate? What are convertible securities? Why are they good for the investor and for the company? Why would they carry a relatively low interest rate? What does callable mean? What advantage does this feature give a company?

Expert Solution

Unsecured note is a type of loan which is not secured by an collateral. It carry high interest rate because they are risky since they are not secured.

Convertible securities are those securities which are convertible to another form. For example, covertible debenture. It can be converted to shares.

Convertible securities are good for investors because it gives an opportunity to buy stock while investing in security. Basically, it removes the risk associated with stock.

Convertible securities are good for investors because :-

1. Tax deduction of interest.

2. After bonds are converted to equity, company has no more obligations.

They carry a relatively low interest rate because it gives option to investor to take shares in future.

Callable means an option to redeem the underlying security before its maturity.

Its advantage to the company is:-

1. Protect company in case market interest rate drops in future.

2. Avoid risk in case of securities issued with high maturities like 20 years since company can redeem in case they no longer want to have obligations if they have sufficient balance in their account.

ekkarill92 answered 9 months ago

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