Convertible bonds, Financial Management

Assignment Help:

Basics of Convertible Bonds

The provision of conversion in a corporate bond entitles the bondholder the right to convert the bond into a predetermined number of shares of common stock of the issuer. Put differently, one can say that a convertible bond is a corporate bond with a call option to buy common stock of the issuer.

The number of shares of common stock that the bondholder can receive from exercising the call option of the convertible bond is called the conversion ratio.

The strike price or the exercise price at which the investor exchanges the bond for the share is called conversion price.

More often than not, most of the convertible bonds are callable at the option of the issuer. Some of the convertible bonds are puttable. The put options are further classified into hard puts and soft puts. If the convertible bond is redeemable by the issuer only for cash it is known as hard put. If the issuer has the option to redeem the convertible security for cash, common stock, subordinated notes, or for a combination of the three, then it is called a soft put.

 


Related Discussions:- Convertible bonds

Portfolio management, Portfolio Management: Project Portfolio Manageme...

Portfolio Management: Project Portfolio Management (PPM) is the centralized management of processes, technologies and methods used by project management offices (PMOs) and pro

Calculate the waac, Question 1: You hold a diversified portfolio consi...

Question 1: You hold a diversified portfolio consisting of a Rs.5,000 investment in each of 20 different common stocks. The portfolio beta is equal to 1.15. You have decided t

Price volatility characteristic of bond with embedded option, The price of ...

The price of the embedded option comprises two components. The first is the value of the same bond assuming it has no embedded option (option-free bond), th

Arbitrage-free valuation approach, The main drawback of the tradition...

The main drawback of the tradition approach of valuation is that it discounts every cash flow using the same discount rate. For example, let us take 5-year (7.00 per ce

Treasury bonds or t-bonds or the long bond, Treasury bonds are the bo...

Treasury bonds are the bonds issued with maturities greater than 10 years. However, these are commonly issued with a maturity of 30 years. Like T-notes, these bon

What are the characteristics of an efficient market?, What are the characte...

What are the characteristics of an efficient market? The term market efficiency denotes to the ease, speed, and cost of trading securities. In an efficient market the securitie

Scope of finance function, SCOPE OF FINANCE FUNCTION In several busine...

SCOPE OF FINANCE FUNCTION In several businesses, based on the complexity and size of financial decision-making, the scope of finance function may be categorized into incidenta

Ratchet bonds, The coupon rate of these types of bonds is adjusted pe...

The coupon rate of these types of bonds is adjusted periodically at a fixed margin over a reference rate. It can be adjusted southward only and once it is adjuste

What is commercial papers, Q. What is Commercial Papers? Commercial Pap...

Q. What is Commercial Papers? Commercial Papers: Commercial papers (CPs) are short-term, unsecured securities issued by highly creditworthy large companies. They are issued wit

Enumerate the internal development of any business, Enumerate the Internal ...

Enumerate the Internal development of any business or 'organic growth' Business grows using its own internal resources. - Reduces risk of the high cost of integrating cultur

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd