Question

1. The following characteristics of a bond or debt will reduce the yield required by investors:
2. A put feature allowing the investor to sell back the bond/debt to the issuer for a fixed price
3. A conversion feature allowing the investor to convert the bond/debt into the issuer’s common stock
4. Exemption from federal taxation (like on municipal bonds)
5. Seniority of claim in case of default
6. All of the above

Answer 1

All of the above

Put feature and conversion feature gives discretion in the hands of bondholder, so the required return decreases.

Seniority in claim makes bond more secured, so default risk premium reduces.