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

Irr, #question how to collect real irr %..

#question how to collect real irr %..

Global sector indixes, Global Sector Indixes Morgan Stanley Capital Int...

Global Sector Indixes Morgan Stanley Capital International (MSCI) measures the International and National performance. It launched All Country Sectors on January 30, 2001. MSCI

Going concern in financial management, Going Concern in Financial Managemen...

Going Concern in Financial Management Going concern means in which business activities will continue for a fairly long period of time unless and until the business has entered

Assignment, Discuss the applicability ofan operating cycle in a poultry bus...

Discuss the applicability ofan operating cycle in a poultry business(consider broilers)

Explain opportunity costs affect the capital budgeting, How do opportunity ...

How do opportunity costs affect the capital budgeting decision-making process? Opportunity costs imitate the foregone benefits of the alternative not chosen while a capital budge

Miller approach of irrelevance of dividends, Q. Miller Approach of irreleva...

Q. Miller Approach of irrelevance of dividends? Discuss the Modigliani as well as Miller Approach of irrelevance of dividends. What are its drawbacks? Ans. Modigliani with M

How is present value affected by change in the discount rate, How is presen...

How is present value affected by a change in the discount rate? Present value is inversely associated to the discount rate.  In other words current value moves in the opposite

Motivate the actions of a firms financial manager, Q. What goals should alw...

Q. What goals should always motivate the actions of a firm's financial manager and why? Answer:   Please note that a minimum of 250 words is required on all responses to the d

What is the modigliani and miller theory of dividends, What is the Modiglia...

What is the Modigliani and Miller theory of dividends?  Explain. The Modigliani-Miller theory of dividends says so as dividend theory is irrelevant.  They claim so as to it is

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