Unformatted text preview: nconvertible debt because they offer the bondholder a chance for capital gains in exchange for lower coupon payments. Capital gain is a hedge against inflation, and a cheap method of acquiring a stock which ought to be rising in price.
Almost all convertible bonds are callable.
46 Characteristics of Bond Conversion rights The indenture will tell you how many shares of stock the bond is convertible into. For instance, it might say that it is convertible into 20 shares. Therefore, the conversion ratio is 20:1. Unfortunately, it's not always that easy. For instance, the indenture might state the conversion price. The conversion price is the price per share that the company is willing to trade their shares of stock for the bond. For example, if the indenture states that the conversion price is $50 per share, the bond is convertible into 20 shares of stock. You divide the par value (usually $1,000 for corporate bonds) by the conversion price. Occasionally, the indenture might state that the conversion ratio w...
View Full Document