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10 Cards in this Set
- Front
- Back
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Features of Convertible Bonds |
Convertible into common stock at holder’s option Interest(coupon) Maturity Date Call feature |
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Valuation of convertible bonds |
Number of shares into which the bond may be converted Face value divided by the conversion price |
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Conversion Price |
Face value divided by number of shares into which the bond may be converted |
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Reasons for convertible bonds |
Lower the coupon rate on debt Delay dilution |
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Convertible Bond’s Value as Stock |
Depends on: The principal amount of the bond or face value The conversion price per share of the bond The market price of the common stock |
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Value of Convertible Bond as Debt |
Varies with market interest rates. An increase in interest rate cause the value to fall. A decrease in interest rates caused the value to rise. |
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Convertible Bond Premium (Conversion Premium) |
The different between the current stock price and the conversion price. |
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Convertible Preferred Stock |
Holders are able to convert preferred shares into a fixed number of common shares after a specified date Is a hybrid security that features both debt from its fixed guaranteed dividend payment and equity. |
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Convertible Preferred Stock |
Cannot sell below value as stock for any length of time. Minimum value must be equal to conversion value of the stock. |
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Importance of the Call feature |
Company may call the bond Forced conversion Price of stock must exceed conversion price to force conversion |
