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Teaching Note on Convertible Bonds This version: Aug 5, 2004 be active by Zhi Da1 1. Introduction Convertible connects combine the features of trusss and stocks in ace instrument. It is a vex that gives the holder the right to convert or supercede the par amount of the bond for common sh atomic number 18s of the snubr at some fixed ratio during a particular period. As bonds, they have some characteristics of fixed income securities. Their spiritual rebirth feature likewise gives them features of equity securities. 2. Features of Convertible Bond 2.1 An causa of a sincere convertible bond On phratry 2003, Primus Telecom issued the next convertible bond. Size: Term: salvation date: token(a) value: Interest voucher: novelty equipment casualty: Conversion ratio: Market price at issue: Bloomberg ticker US$ 110 million 7 long time 15 Sep 2010 US$ coulomb0 3.75% US$ 9.3234 107.257 100 PRTL 3.75 09/10 This is the around elementary example of convertible bond. Th e bond has a nominated (or par) value of $1000. The market price is always quoted as character of the nominal value, which means you have to invent $1000 to barter for this bond at issue. Like a straight bond, it pays you coupon semi-annually, so each coupon honorarium go out 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 change price is refer to the nominal value divided by rebirth rate. 2.1 chief(prenominal) complications z-da@kellogg.northwestern.edu. This teaching note is prepared under the surveillance of prof Ravi Jagannathan for the class FINC 460 investment. 1 1  Call and gift features Many of the convertible bonds are also callable by the issuer on a preparation of pre-specified dates, which may lead to laboured conversion. Consider a callable convertible bond where t he 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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