Convertible bonds, Financial Management

Assignment Help:

Convertible bonds are the debt instruments issued which can be converted after a pre-specified date for a pre-specified number of securities (generally equity stock). It is necessary that all other relevant inform about the conversion of the bonds should be clearly given in the offer document of the convertible bond.

Investor has the choice to convert or not convert the bonds into stocks. If he chooses not to convert the bonds into stock then he will keep receiving interest payments from the company. In the other case, he will get a specific number of equity shares of the company. Since the investor is getting the conversion privilege, he/she will accept a lower coupon rate for a convertible bond compared with an otherwise identical non-convertible bond (i.e., a non-convertible bond with same credit rating, the same term to maturity, etc.). Thus, we can conclude that convertible bonds may have a lower cost of capital in comparison to non-convertible bonds with same caracteristics. It may be possible that when conversion of bonds becomes due the conversion price is lower than the market price of the share. In such a scenario the company will loose what it earned because of lower cost of capital. Therefore, it is very necessary that the company should set the conversion price very carefully.


Related Discussions:- Convertible bonds

Agency relationship, Solutions to shareholders and government agency proble...

Solutions to shareholders and government agency problemquestion #Minimum 100 words accepted#

Describe the direct costs and variable costs, Question : (a) A project ...

Question : (a) A project must have a useful purpose. Therefore, as a project is evaluated, the team should determine the requirements of the local community and industry. These

Write a note on underwriting, Question 1 Explain the components of Indian ...

Question 1 Explain the components of Indian Financial System Question 2 Write a short note on Primary and Secondary markets Question 3 Explain the Investment optio

Determining the value at a node or backward induction, The value of node is...

The value of node is determined using a methodology called backward induction. The value at any node depends on the future cash flows; therefore, we need to start from

Types of us treasury securities, Under treasuries, there exist ...

Under treasuries, there exist different types of securities like treasury bills, treasury notes, treasury bonds, inflation protection securities

How do risk-averse investors compensate for risk, How do risk-averse invest...

How do risk-averse investors compensate for risk when they take on investment projects? Due to the risk aversion, people demand higher rates of return for taking on higher-risk p

Types of investment decisions, Q. Types of investment decisions? (1) Sh...

Q. Types of investment decisions? (1) Short-term investment decisions: - This kind of investment decisions related to the short-term assets. These decisions are as well called

What is the tolerable error, What is the Tolerable error In addition t...

What is the Tolerable error In addition to looking at material differences individually the auditor must list all the differences (material or not) and consider in total wheth

Macro-economic analysis, Macro-Economic Analysis Measuring the Level o...

Macro-Economic Analysis Measuring the Level of Economic Activity Gross National Product (GNP) and the Gross Domestic Product (GDP) are the two most widely used aggregates

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd