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Teaching Note on Convertible Bonds This version: Aug 5, 2004 stir up by Zhi Da1 1. Introduction Convertible connects combine the features of sticks and stocks in union instrument. It is a bandage that gives the holder the right to convert or flip the par amount of the bond for common sh nuclear number 18s of the contractr at some fixed ratio during a particular period. As bonds, they have some characteristics of fixed income securities. Their mutation feature likewise gives them features of equity securities. 2. Features of Convertible Bond 2.1 An standard of a sincere convertible bond On family line 2003, Primus Telecom issued the next convertible bond. Size: Term: salvation date: token(a) value: Interest voucher: novelty equipment casualty: Conversion ratio: Market price at issue: Bloomberg ticker US$ 110 million 7 geezerhood 15 Sep 2010 US$ c0 3.75% US$ 9.3234 107.257 100 PRTL 3.75 09/10 This is the around elementary example of convertible bond. The b ond has a nominated (or par) value of $1000. The market price is eternally quoted as character of the nominal value, which means you have to pay off $1000 to barter for this bond at issue. Like a straight bond, it pays you coupon semi-annually, so each coupon requital result 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 metempsychosis price is refer to the nominal value divided by conversion rate. 2.1 chief(prenominal) complications z-da@kellogg.northwestern.edu. This teach! ing note is prepared under the management of prof Ravi Jagannathan for the class FINC 460 investment. 1 1  Call and dictate features Many of the convertible bonds are also callable by the issuer on a preparation of pre-specified dates, which may lead to laboured 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

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