A few unrelated questions

You are armed holding a bow, but a bow is not a melee weapon, so it would be considered an improvised weapon - but still, you are armed.

Definitely armed. Shields are used as offensive weapons all the time (and in Conan 2d20 this is actually quite well modeled in the rules mechanics) .

Of course, it has damage stats given, Reach, etc. This is a melee weapon.

If the choice is completely free, then of course. It is a melee weapon after all.
But for many archetypes the choice is limited.

Other than potentially minor mechanical benefits, it adds some flavor that can make people narratively easier to kill. If someone is scared, they won’t fight as well, and if they’re scared badly enough, they may run away in a stright line, making them easier to shoot with your bow than someone who is actively dodging or trying to get at you. It might take a GM who is willing to bend things a little to get narrative effects for mechanical qualities, but my first thoughts about this question were purely on the narrative/practical side.

…also a character may just enjoy seeing fear in someone’s eye before they die, who knows?

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It is helpful when taking out mobs.

I can’t find any official rules on combining physical and mental stress to mobs, but I would rule that they add.

For example, consider a mob of 5 bandits, each with 5 VIgor and 4 Resolve.
If you attack with a fearsome weapon and roll really well on effects, doing 8 vigor and 4 resolve damage, I would rule that 5 of your 8 vigor deals with out one bandit (dead), all 4 of your 4 resolve takes out a second bandidt (who turns tail and runs), and the remaining 3 of your vigor goes against a 3rd bandit.

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And considering that there are a some Displays with the Area quality, but only very few (alchemical) physical attacks with the same quality, Threaten attacks with Area quality will take out a mob in a single hit, as the damage affects everyone within Reach of each other, and most of the time all Minions in a Mob are considered to be within in Reach of each other. Mobs don’t get to make any Reaction, so they are all automatically affected.

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