A convertible security offers holders partial protection on the downside (similar to the straight bond) based on the going-concern and liquidation values of the firm.
A convertible security offers holders partial protection on the downside (similar to the straight bond) based on the going-concern and liquidation values of the firm.
A convertible security also provides holders with the ability to participate in the upward movement in common stock prices.
The greater the volatility of common stock price, the greater the potential gain and the more valuable the option.
Relationships Among Premiums – Summary
These issues usually occur when the issuer owns common stock in the company in which the bonds can be exchanged.
Exchangeable Bond – A bond that allows the holder to exchange the security for common stock of another company – generally, one in which the bond issuer has an ownership interest.
These issues usually occur when the issuer owns common stock in the company in which the bonds can be exchanged.
Exchange requests are satisfied either by open market purchases or directly using the firm’s investment holdings of the other company’s stock.
