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Teaching Note on Convertible Bonds This version: Aug 5, 2004 egg on by Zhi Da1 1. Introduction Convertible connects combine the features of sticks and stocks in uniformity instrument. It is a bind that gives the holder the right to convert or commuting the par amount of the bond for common sh atomic number 18s of the rationaliser at some fixed ratio during a particular period. As bonds, they have some characteristics of fixed income securities. Their reincarnation feature likewise gives them features of equity securities. 2. Features of Convertible Bond 2.1 An recitation of a sincere convertible bond On phratry 2003, Primus Telecom issued the next convertible bond. Size: Term: repurchase date: token(a) value: Interest voucher: novelty monetary value: Conversion ratio: Market price at issue: Bloomberg ticker US$ 110 million 7 old age 15 Sep 2010 US$ snow0 3.75% US$ 9.3234 107.257 100 PRTL 3.75 09/10 This is the around elementary example of convertible bond . The bond has a nominated (or par) value of $1000. The market price is constantly quoted as character of the nominal value, which means you have to reconcile $1000 to barter for this bond at issue. Like a straight bond, it pays you coupon semi-annually, so each coupon hire result be 1000*3.75%/2 = $18.75. In addition, it allows you to exchange the bond for 107.2570 shares anytime onward maturity, which is 09/15/10.

If the bond is not converted, it will be ransomed at par on maturity. Finally, the rebirth price is refer to the nominal value divided by conversion rate. 2.1 chief(prenominal) complications z-da@kellogg.northwestern.edu. This teachi! ng note is prepared under the direction of prof Ravi Jagannathan for the class FINC 460 investment. 1 1  Call and plant features Many of the convertible bonds are also callable by the issuer on a preparation of pre-specified dates, which may lead to oblige conversion. Consider a callable convertible bond where the issuer has the option to call the bond at par tomorrow. However, the conversion value of the bond is $110. In this...If you want to get a full essay, order it on our website: OrderCustomPaper.com

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