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True or False: Suppose that we are in a perfect capital market without any frictions (so no taxes,
no bankruptcy costs, etc.). Consider two firms, one of which has issued standard debt and one of
which has issued convertible debt. The firms are otherwise identical, and the face values of the
two debt issues are the same. Compared to the standard debt, the convertible debt will generally
have a lower yield and a higher expected return than standard debt.

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  • 1. True or False: Suppose that we are in a perfect capital market without any frictions (so no taxes, no bankruptcy costs, etc.). Consider two firms, one of which has issued standard debt and one of which has issued convertible debt. The firms are otherwise identical, and the face values of the two debt issues are the same. Compared to the standard debt, the convertible debt will generally have a lower yield and a higher expected return than standard debt.