chapter 4 , Return on debentures

[Montgomery]

I have been reading the notes , but I'm still unsure how the marketability of debentures is explained.

Debenture stocks are not readily marketable , the total return on debentures will reflect all these risks

Generally the total returns ( referred to as the gross redemption yield,or GRY ) of a debenture would be expected to be :

a) Superior to that of a convertible preference share because the convertible preference share offers not only an income yiled but a potential capital gain as well, thus the required income yield is lower than a debenture.
??? Really , I cant understand this point if the convertible shares offers income yield and potential capital gain , then it means they give more income than a debenture , so they should be more marketable ??



Less than that of a unsecured stock because an unsecured stock offers no capital growth .. So it means that they are more reliable/better unsecured loan stocks, isn't it and that should make debentures more marketable .




Please help ,

Thanks

Montgomery

 

[freddie]

I think this stuff is tricky, but I think you're confusing "marketability" with "attractiveness" of the security. Marketability is to do with the ability to buy and sell - is there an active market in the security? Debentures aren't very marketable (infrequent issues etc) so the return on very safe debentures is about 0.5% higher than government bonds.