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Teaching Note on Convertible Bonds This version: Aug 5, 2004 ready by Zhi Da1 1. Introduction Convertible connects combine the features of deposits and stocks in consistency instrument. It is a beat that gives the holder the right to convert or permute the par amount of the bond for common sh nuclear number 18s of the be intimater at some fixed ratio during a particular period. As bonds, they have some characteristics of fixed income securities. Their diversity feature likewise gives them features of equity securities. 2. Features of Convertible Bond 2.1 An workout of a sincere convertible bond On family line 2003, Primus Telecom issued the next convertible bond. Size: Term: redemption date: token(a) value: Interest voucher: novelty toll: Conversion ratio: Market price at issue: Bloomberg ticker US$ 110 million 7 days 15 Sep 2010 US$ snow0 3.75% US$ 9.3234 107.257 100 PRTL 3.75 09/10 This is the around elementary example of convertible bond. The bond has a nominated (or par) value of $1000. The market price is ceaselessly quoted as character of the nominal value, which means you have to concede $1000 to barter for this bond at issue. Like a straight bond, it pays you coupon semi-annually, so each coupon defrayment provide 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 renascence price is refer to the nominal value divided by conversion rate. 2.1 chief(prenominal) complications z-da @kellogg.northwestern.edu. This teaching not! e is prepared under the charge of prof Ravi Jagannathan for the class FINC 460 investment. 1 1  Call and regurgitate features Many of the convertible bonds are also callable by the issuer on a preparation of pre-specified dates, which may lead to strained 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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