CH-16 - Investments: An Introduction 10e H er ber t B. M...

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Unformatted text preview: Investments: An Introduction 10e H er ber t B. M ayo Chapter 16 :Conver tible Bonds and Conver tible Pr efer r ed Stock 2 Features Common to Convertible Bonds Convertible into common stock at holder's option Interest (coupon) and maturity date Importance of the call feature 3 Convertible Bond Three possible outcomes conversion retirement at maturity default 4 Conversion Ratio Face value divided by the conversion price $1000 / $20 = 50 shares 5 Conversion Price Face value divided by the number of shares into which the bond may be converted $1000 / 50 shares = $20 6 A Convertible Bond's Value as Stock The conversion ratio times the price of the stock 7 Relationship Between the price of a stock and the conversion value of the bond: 8 Value of a Convertible Bond as Debt Investment value of a convertible bond Model for the valuation of a bond 9 Value of a Convertible Bond as Debt 10 Minimum Price Minimum price of the bond combines: the value of the bond as stock, and the value as debt. 11 Minimum Price 12 Actual Price of a Convertible Bond 13 The Premiums The premiums paid over The bond's value as stock The bond's value as debt 14 The Premiums 15...
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CH-16 - Investments: An Introduction 10e H er ber t B. M...

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