PPT Slide
Risks associated with convertible bond investment
The price of a typical bond changes in the opposite direction from a change in interest rate.
1. The cash flow pattern of a callable bond is not known
2. Since the issuer will call the bond when the interest
rates have dropped, the investor is exposed to reinvestment
3. The capital appreciation potential of a bond will be reduced
since the bond price is capped by the call price.
Liquidity risk and default risk