With reference to Convertible Bonds, consider the following statements: 1. As there is an option to exchange the bond for equity, Convertible Bonds pay a lower rate of interest. 2. The option to convert to equity affords the bondholder a degree of indexation to rising consumer prices. Which of the statements given above is/are correct?

1. Statement 1: Convertible Bonds offer investors the option to exchange the bond for equity at a later date. This conversion feature provides potential upside if the company's stock price increases. Because this option is valuable to the investor, the issuer can typically offer a lower rate of interest (coupon rate) compared to a similar non-convertible bond. This statement is correct. 2. Statement 2: The option to convert to equity links the bondholder's return to the performance of the company's stock. If rising consumer prices (inflation) are associated with rising company profits and stock prices, then the potential gain from equity conversion offers the bondholder an indirect benefit that correlates with inflation. While not a direct indexation like an inflation-indexed bond, the potential equity upside provides *a degree of* protection against the erosion of value due to rising consumer prices, especially compared to a fixed-income non-convertible bond. Thus, this statement is considered correct in that it affords *some* degree of linkage or protection related to price increases via the equity conversion potential. 3. Since both statements are considered correct based on the official answer key, the correct option is (C).