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Business & Marketing
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English (U.S.)
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FMA-VI 1 of 2: Sources of risk and diversification

Essay Instructions:
Sources of Risk & Diversification – convertible bond. Address each source of risk from the portfolio perspective and how diversification impacts them. Your response should be at least 250 words in length. You are required to use at least your textbook as source material for your response. All sources used, including the textbook, must be referenced; paraphrased and quoted material must have accompanying citations. Course Textbook Lasher, W. R. (2011). Practical financial management (6th ed.). Mason, OH: South-Western.  Chapter 10: Capital Budgeting
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Sources of risk and diversification
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Companies use bonds to strengthen and create a more balance portfolio. This means that other investors who are not particularly part of the shareholders can lend money to the company through bonds. Bonds vary depending on the terms of the legal documents outlining their characteristics. A company may choose to issue convertible bonds instead. The convertible bonds are flexible as they can change their value should the bondholders or the company feel they are under or overvalued (Lasher, 2011). Due to this, they also have risks involved.
If after issuing the bond and there is decline in interest rate, companies may call their bonds. Stockholders may lose the possibility of benefiting from the bond. If on the other hand the interest rate rises, there is no guarantee however that the bonds will be called. The original investor is left at a lo...
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