What is the difference between conversion parity and conversion value? How would you describe the payback period on a convertible? What is the investment value of a convertible, and what does it reveal?
Answer to relevant QuestionsHow would you describe the behavior of market interest rates and bond returns over the last 30 years? Do swings in market interest rates have any bearing on bond returns? Explain. Bonds are said to be quoted “as a percent of par.” What does that mean? What is 1 point worth in the bond market? Why do companies like to issue convertible securities? What’s in it for them? A certain convertible bond has a conversion ratio of 21 and a conversion premium of 20%. The current market price of the underlying common stock is $40. What is the bond’s conversion equivalent? An investor lives in a state with a 3% tax rate. Her federal income tax bracket is 35%. She wants to invest in 1 of 2 bonds that are similar in terms of risk (and both bonds currently sell at par value). The first bond is ...
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