Convert

Teaching Note on Convertible Bonds This version: Aug 5, 2004 impress by Zhi Da1 1. Introduction Convertible connects combine the features of dumbfounds and stocks in whizz instrument. It is a stick with that gives the holder the right to convert or substitute the par amount of the bond for common sh atomic number 18s of the solutionr at some fixed ratio during a particular period. As bonds, they have some characteristics of fixed income securities. Their passage feature likewise gives them features of equity securities. 2. Features of Convertible Bond 2.1 An pillow slip of a sincere convertible bond On kinfolk 2003, Primus Telecom issued the next convertible bond. Size: Term: redemption date: token(a) value: Interest voucher: novelty expenditure: Conversion ratio: Market price at issue: Bloomberg ticker US$ 110 million 7 age 15 Sep 2010 US$ ampere-second0 3.75% US$ 9.3234 107.257 100 PRTL 3.75 09/10 This is the around elementary example of convertible b ond. The bond has a nominated (or par) value of $1000. The market price is ever so quoted as character of the nominal value, which means you have to have a bun in the oven $1000 to barter for this bond at issue. Like a straight bond, it pays you coupon semi-annually, so each coupon salary allow be 1000*3.75%/2 = $18.75. In addition, it allows you to exchange the bond for 107.2570 shares anytime onward maturity, which is 09/15/10.

If the bond is not converted, it will be ransomed at par on maturity. Finally, the transition price is refer to the nominal value divided by diversity rate. 2.1 chief(prenominal) complications z-da@kellogg.northwestern.e! du. This teaching note is prepared under the command of prof Ravi Jagannathan for the class FINC 460 investment. 1 1  Call and frame in features Many of the convertible bonds are also callable by the issuer on a preparation of pre-specified dates, which may lead to labored conversion. Consider a callable convertible bond where the issuer has the option to call the bond at par tomorrow. However, the conversion value of the bond is $110. In this...If you want to get a full essay, order it on our website: OrderCustomPaper.com

If you want to get a full essay, visit our page: write my paper