You are thinking to buy some convertible notes or bonds for Martys fixed income portfolio. You recall
Fantastic news! We've Found the answer you've been seeking!
Question:
You are thinking to buy some convertible notes or bonds for Marty’s fixed income portfolio. You recall that we discussed Tesla’s recent issue of 2% convertible notes due May 15, 2024. Each $1000 note is convertible into 3.2276 common shares, equal to an initial conversion price of $309.83 per share, and the notes are non-callable. For a while following the issue, Tesla shares were trading below $200 a share, but as of last Friday Dec 13 they were up to $358.39. Demand for the convertible notes has been brisk, and as of Friday, the notes traded at 134.605 % of par.
- At that price, what is the premium over conversion value for each note?
- Similar maturity non-convertible notes issued by Tesla are yielding 5.3%. At that yield, what is the straight investment value of the notes? What is the current premium over investment value for each note?
- Should we purchase the Tesla convertible notes for Marty’s portfolio? Why or why not?
Related Book For
Fundamentals of Corporate Finance
ISBN: 978-1292018409
3rd edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford
Posted Date: