Chap20Notes - What is a convertible bond A Convertible Bond...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
1 What is a convertible bond? A Convertible Bond is a corporate bond that can be converted - at the option of the bond holder - into a predetermined number of shares of common stock of the issuing company. A convertible bond allow you to exchange the remaining coupon payments and the par value of the bond for the residual profits of the firm. Conversion Ratio: The number of shares of common stock that the bondholder receives in exchange for each bond. Convertible Bond Terms Conversion Price = par value / conversion ratio At the time of issuance of a convertible bond, the issuer has effectively granted the bondholder the right to purchase the common stock at the conversion price . Along with the conversion privilege granted to the bondholder, most convertible bonds are also callable. The Conversion Value of a convertible bond is the value of the bond if it is converted immediately: Conversion Value = Market price of common stock x Conversion Ratio Straight Value
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern