Final Answer:
Floating-rate bonds are designed to minimize the holders' interest rate risk, while convertible bonds are designed to give the investor the ability to benefit from interest rate changes and share in the price appreciation of the company's stock. Thus the correct option is C) Minimize the holders' interest rate risk; give the investor the ability to benefit from interest rate changes.
Step-by-step explanation:
Floating-rate bonds are designed to minimize the holders' interest rate risk. These bonds have variable interest rates that are periodically adjusted based on changes in a reference interest rate, such as the LIBOR. This feature helps bondholders avoid the negative impact of rising interest rates since the bond's interest payments increase when rates go up.
Convertible bonds, on the other hand, are designed to give the investor the ability to benefit from interest rate changes. While they also have an embedded option allowing bondholders to convert their bonds into a predetermined number of shares of the issuer's common stock, the primary focus is on providing investors with the opportunity to participate in the potential price appreciation of the company's stock.
In summary, option C accurately describes the purpose of floating-rate bonds and convertible bonds. Floating-rate bonds aim to minimize interest rate risk, while convertible bonds aim to provide investors with the potential for both interest rate-related benefits and the ability to share in the price appreciation of the company's stock.