A large, listed company is planning a major project that should greatly improve its share...

All the options are debt with the same maturity, but convertible bonds include an equity conversion option for investors. Because of that option, the coupon rate at issue is usually lower than on straight bonds or bank loans. However, CIMA F3 emphasises that if the company’s share price is expected to rise significantly (as in this question, where the project should greatly improve the share price), holders are very likely to convert.

When conversion happens, the company settles the debt by issuing shares that, at that point, are worth much more than the original debt value. The effective total cost of finance (interest paid plus the value of equity given up) can end up higher than for ordinary bonds, leases, or bank loans over the full term.

Therefore, given the expectation of a strong future share price, the source of debt finance likely to be most expensive over the full term is:

C. Convertible bonds ✅